Gatekeeper: The consultant holds the key

Many large organizations find that they have funds to manage in their employee retirement plans, but who will manage them? For example, senior managers of aircraft manufacturers or pharmaceutical companies may not know how to invest their employees’ pension funds.

In addition, they may not have the expertise to select the right portfolio manager for them. This is where institutional investment advisors come in. These are the “gatekeepers” that give asset management companies the opportunity to manage funds for large institutions.

Key points

  • Institutional investment advisors provide investment advice to private and public entities.
  • The job of an institutional investment advisor is slightly different from that of an individual investment advisor.
  • Institutional investment advisors provide a wide range of services, including designing retirement plans for large organizations, arranging audits and providing asset allocation advice.

Introduction to a typical investment advisor

Institutional investment advisors provide investment advice to listed and private companies, foundations, and endowments seeking to help manage capital or employee retirement funds.They are widely used in the United States, Europe and Australia.

The industry began to help companies develop pension plans, which is why they are also called pension consultants.Since their role has gone beyond the field of pension advisory, they are now referred to as institutional investment advisors.

Today, many retirement plans include fixed contribution plans and 401(k) in addition to or in place of fixed income plans (pension).Institutional investment consultants use their pension expertise to advise on defined contribution plans and collaborate with other institutions, such as university endowments.

In addition, the breadth of available asset classes has also expanded. There are many alternative investment categories (such as hedge funds or private equity), and institutions may need help navigating.

A typical large consulting group usually divides its consultants into field consultants and research consultants. The on-site consultant is the person who meets with the client. The research department mainly summarizes the performance of managers and other related information. From this research, the consultant provides a “candidate list” of approved managers, which the on-site consultant uses to evaluate the best portfolio manager for a particular client.

A new trend is that the research department of the consulting group is paid based on the return of the managers they choose to be included in the shortlist. This is to align the interests of the research team with the interests of the client.

Need an intermediary

Due to the large number of investment managers, the consultant is an indispensable intermediary, providing an indispensable matching function. They match asset managers with the investment needs of their clients. Because this is the area of ​​expertise of consultants, they generally have screening methods and extensive industry contacts.

Investment consultants are often used in the due diligence process because some companies are either too small or lack the expertise to staff their departments to find investment managers. Even if it is a mature and large company, it may need investment advisors to help it demonstrate fairness in its decision-making. The key is to ensure that portfolio managers are selected according to appropriate criteria.

What they offer

Hundreds of consultants around the world provide an extensive menu of services. Twenty to 30 major players seek to provide their clients with “one-stop shopping” on retirement asset management.

The most common services provided by these major players include:

Asset allocation recommendations

For example, suppose a client needs asset allocation advice. In this case, they may seek answers to questions such as “Should we invest some assets in real estate?” Or “Should we invest more of our equity portfolio in emerging market securities?”

Institutional investment advisors can help guide clients to achieve the best asset allocation. Advisors can also help define formal investment guidelines (investment policy statements) that guide asset allocation. Or they can work within the constraints of previously established guidelines, focusing on the risk/return profile of each asset class. However, their main business is to help clients (most commonly pension funds) choose the best portfolio managers.

Advisors responsible for finding the right portfolio manager must know what they do and how to do it. Therefore, the rest of this article will focus on manager selection.


So how do portfolio managers get new funds? This process can be very long. Good performance brings more revenue, but not only generates good returns. As gatekeepers, if the consultant does not know who the manager is, they will not let the manager contact the client’s money.

For asset managers, understanding how the game is played is crucial-they need to be positioned to attract attention. Some concrete measures can be taken to ensure this. One of them is compliance with the Global Investment Performance Standards (GIPS).In the United States, many investment advisers will not even consider managers for their clients if they do not meet GIPS standards.

Managers can use other strategies to get people to deal exclusively with the advisory community. All asset managers have a customer service department to help promote the relationship between managers and customers. They are the main contact of the customer, who can provide monthly reports and answer one-time questions that the customer may encounter. This same concept of relationship management is transferred to departments or individuals that help manage the relationship between asset managers and the advisory community.


From the perspective of consultants, their job of selecting asset managers is to conduct all necessary due diligence and select the best managers for specific clients. As part of this, many consultants have developed their databases. These databases not only track manager’s performance data, but also track other relevant data points, such as managed assets, portfolio manager’s tenure and style information.

Most of these databases are set up to allow asset management companies to periodically send updates to consultants to refresh their information in the database.


In addition to executing screens and processing numbers, choosing an asset manager has more work. There are also qualitative and quantitative factors, such as long-term returns or total assets under management.

Many proprietary databases also have features that allow consultants to scan the records of meetings with managers. This helps consultants track intangible assets that do not make screens. This qualitative aspect is why asset managers need to worry about their image in the advisory community. It’s not that you can solve the problem by “participating” with the consultant, but if everything else is the same, it will give the manager an advantage in the due diligence process.

The consultant performs a number of activities when conducting a manager search. Although these steps may not be performed in the exact order, they will follow a process. Some important steps leading to recruitment include:

  • Setting guidelines
  • Database screening
  • Choose finalists
  • Performance analysis
  • Risk Analysis
  • Site visit

There are several other steps and sub-steps, but they all try to answer the same question: “What kind of manager is best for this client?”

Bottom line

When people look at their vested pension benefits or 401(k) balance, they may not think that they might have chosen the consultant who managed their retirement team. However, they are there every day to work hard for companies everywhere.

As of 2020, retirement system assets are estimated to exceed 30 trillion U.S. dollars,And consultants helped place most of the funds. The business of these institutional investment advisors is invisible to most people, but they have a major impact on everyone’s future.


READ ALSO:   401(k) planning and stock picking: what is the difference?
Share your love