Specialized Investment Consulting in Demand

The increased need for specialized investment consulting services is driving many of the top brokerage houses to reduce their reliance on the large, general consulting firms, a recent study shows.

The increased need for specialized investment consulting services is driving many of the top brokerage houses to reduce their reliance on the large, general consulting firms, a recent study shows.

The study, released Tuesday by Boston-based Cerulli Associates, says brokerage firms are using more consulting services than ever, but they are being much more specific about what the engagements are designed to achieve.

"Firms are parceling out responsibilities to a lot of smaller firms, because they’re hiring out for the things they don’t necessarily do best," says Kathleen O’Connor, a director at Cerulli and the study’s author. "There are a lot of new firms spinning out of old firms, focusing on certain individual aspects."

The net result of this trend, O’Connor says, is to reduce the overall influence of the largest consulting firms, including Mercer Investment Consulting and Cambridge Associates. "It’s definitely reducing the market share of some of the larger firms, and we don’t see it changing any time soon," she says.

Other major findings from the study:

* Bigger plans deploy more consultants. More than 50 percent of large individual asset allocation plans—those with more than $10 billion—employ multiple consultants. By contrast, only 9 percent of plans with $100 million or more did so.

* A typical firm/consultant relationship lasts seven years.

* 90 percent of investment consulting firms have centralized research departments, and 62 percent have formal search committees.

* On average, consulting firms conduct 495 manager meetings a year. And 58 percent of consulting companies have a specific ranking system that they apply to individual managers.

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