10 Questions Trustees should ask

Investment consultants are Trustees’ long-term strategic investment thinking partners. When selecting a consultant the Trustees therefore need to make a long-term decision.

Selecting an investment manager is all about the four “p’s” i.e. philosophy, process, people and performance. So, why should selecting an investment consultant be any different?

When evaluating an investment consultant, philosophy relates to the alignment of investment beliefs between the Trustees, the consultant and also the investment manager. Process is how the investment consultant goes about conducting proprietary internal research and due diligences on investment managers, how such research feeds through into their recommendations and, finally, the implementation of Trustees’ decisions. People refer to the staff experience and the retention of such expertise, the teamwork and the collaboration to produce the best investment advice.

But what about performance? Contrary to investment managers, truly independent investment consultants are not sellers of products but rather providers of tailor-made advice. Every client is different and a one-size fits all approach is not best practice. Investment consultants should find solutions for their clients and not clients for their solutions. Further, investment consultants only provide the advice; Trustees make the decisions where after the consultant implements the decisions. Trustees therefore cannot consider performance track records in isolation. Many of the most important aspects when searching for the best investment consultant will not be revealed in their track records.

As an initial screening tool, Trustees may simply wish to consider truly independent, conflict free investment consulting businesses.

But, how do you as a Trustee ensure that you will be receiving truly independent and conflict free advice? What comprise independence to one consultant might be conflicts to another. It is key that the investment consultant outlines what “independence” and “conflict free” means to him as we are yet to see any investment consultant in the industry that does not claim they are independent and provide conflict fee advice albeit that there are actually only a handful that are truly independent and do not manage conflicts but rather avoids conflicts at all costs.

Trustees should aim to find an investment consultant that is focused solely on investment consulting. In medical terms, it should not be a general practitioner but a specialist. Investment consultants should stick to their knitting and should not try to be everything to everybody.

Trustees should also consider companies, which have a very strong culture, i.e. a strong set of values and ethical behaviors, which form the way work gets done at the company. A strong culture, combined with an empowered and fully committed and highly talented and most importantly stable team should provide a good platform from where the company can provide investment advice.

Preferably, Trustees may also want to give preference to investment consultants who live and breathes their business and has a passion to look after their client’s interests. It’s not difficult to find these – simply assess the staff turnover at investment consultants and you’ll know which company’s offers more than a job. Like anything in life, someone who really enjoys what they are doing will be better at it than someone who consults merely as a job.

But, what other questions do Trustees need to ask a prospective investment consultant in order to determine who best fits their needs?

Trustees should most definitely request the basic information such as client and staff turnover as well as client and industry references to determine client satisfaction. When you ask about staff turnover, ensure that you also obtain information regarding the more junior and the back office staff turnover as well as investment consultant firms have high staff turnover at these levels but they are never disclosed to clients. The investment consultant, who advises you, is only as good as the team that supports him. In terms of references, if you ask any investment manager for their views about the investment consultant ensure that there is no financial arrangement or working relationships between the consultant and the manager. If you want an objective independent view of the investment consultant then ask objective and non-conflicted references.


Herewith a list of 10 questions Trustees should be asking investment consultants –

  1. Outline your business model i.e. do you offer a “one stop shop” or do you solely focus on investment consulting?
  2. Define what “independent” and “conflict free” investment advice means to you and explain how you aim to provide such to the Trustees?
  3. Do you provide any services to any other service providers of the Fund i.e. services to any of the Fund’s investment managers or custodians or to any stockbrokers or prime brokers which the Fund’s managers use?
  4. Do you provide services such as Regulation 28 compliance and Unitization Services? If so, outline why do you not see providing such services to be a conflict of interest?
  5. Experience in actually managing money creates a better portfolio for clients. It combines theoretical design with practical implementation. Outline whether your staff has actual investment management experience?
  6. Alternative assets such as hedge funds, private equity and infrastructure assets are becoming mainstream assets. Outline your experience and expertise in these fields of investing?
  7. Opportunities exist for those who wish to find them. Outline how you travel the world to find investment opportunities for your clients?
  8. Outline your model portfolio based on your own internal proprietary research. For example, provide your views on the inclusion of passive tracker mandates, fundamental indexation, commodities, dynamic hedging etc. within a well-diversified investment portfolio.
  9. Outline your approach to guiding Trustees to implement Responsible Investing within their Investment Policy Statement and their investment manager mandates and also outline whether you belong to any industry bodies such as UNPRI?
  10. Describe your approach to Corporate Social Investment and how your firm positively impacts your direct community in which you live and work.