Glossary · Intermediary & service provider
Investment Consultant
Also called: gatekeeper
"Consultant" is also used for operating advisers to portfolio companies; this page covers advisers to investors.
An investment consultant is a firm that advises institutional investors on investment policy, asset allocation, manager selection and performance monitoring, while the client keeps the final investment decision.
Boards of pension funds, endowments and foundations rarely have the time or staff to research hundreds of managers. A consultant does that work: it proposes a policy portfolio, runs manager searches and reports on how the portfolio and each manager are doing. Because its research decides which managers a client meets, fund managers often call consultants gatekeepers.
What consultants do
A Securities and Exchange Commission (SEC) staff report on pension consultants listed the core services: identifying investment objectives and restrictions, allocating plan assets, selecting money managers, selecting the fund options offered to plan participants, monitoring managers and funds and recommending changes, and selecting other service providers such as custodians and administrators.
For private markets the work adds commitment pacing plans, due diligence on general partners, fund-term review, and recommended or approved lists of managers the consultant's research team rates highly. Manager searches often begin with the consultant's screen and end with finalists presenting to the client's investment committee, sometimes after a formal request for proposal.
General and specialist consultants
A general consultant advises on the whole portfolio: policy, strategic asset allocation, public and private managers and reporting. A specialist consultant advises on one asset class, such as private equity, real estate or hedge funds, often alongside the general consultant. Many consulting firms also offer discretionary mandates; when a consultant takes discretion it becomes an OCIO for that client.
Legal status and duties
US. An investment adviser under section 202(a)(11) of the Investment Advisers Act is a person who, for compensation, is in the business of advising others about securities. The SEC's 1987 staff interpretive release (Advisers Act Release No. 1092) states that advice on the selection or retention of investment managers can, under certain circumstances, be "advising" others in that sense, so a consultant that gives such advice as a business for compensation is generally an investment adviser; when SEC staff reported on the sector in 2005, approximately 1,742 SEC-registered advisers indicated that they provided pension consulting services (registration data as of November 2004). An adviser owes its clients a federal fiduciary duty of care and loyalty and must eliminate or fully disclose conflicts of interest that could make its advice less than disinterested. For a plan governed by ERISA, a person is a fiduciary to the extent it renders investment advice for a fee with respect to plan assets (section 3(21)(A)(ii)); whether a particular consultant meets that test depends on the facts and on Department of Labor rules.
UK. Since 1 October 2022, trustees of relevant trust schemes (occupational pension schemes set up under trust, excluding relevant small schemes, executive pension schemes and certain others) must set objectives for each provider of investment consultancy services, review the objectives at least every three years and after any significant change in investment policy, and review the provider's performance against them at least every 12 months. The regulations define the service as advice to the trustees on the merits of exercising their investment powers in a particular case, appointing a particular fund manager, strategic asset allocation or adopting a particular investment strategy, or on preparing or revising the statement of investment principles; advice given as the trustees' appointed legal adviser, and an actuary's high-level commentary in an actuarial valuation on the link between the statutory funding objective and the investment strategy, are excluded.
Conflicts of interest
Consultants are paid by the asset owner, but some also sell services to the managers they evaluate. In a 2005 report, SEC examination staff described examinations of 24 pension consultants registered as advisers: 13 provided products or services to both pension clients and money managers or mutual funds on an ongoing basis, and 14 had affiliated broker-dealers or relationships with unaffiliated ones. Eight of the 13 consultants that hosted client conferences let money managers attend for a fee. Disclosure was weak: of the 19 consultants or affiliates that provided products or services to managers, three disclosed nothing about those services and 16 gave only limited disclosure, and two had brokerage referral arrangements that did not appear to be disclosed. The report reflects examinations of 2002–2003 and staff findings, not Commission conclusions, but its questions remain the standard ones: who pays the consultant, what it sells to managers, whether it has affiliated managers or brokers, and how its approved list is built. See conflict of interest.
Not the same as
- Outsourced Chief Investment Officer (OCIO): An OCIO has delegated discretion to implement decisions; a consultant advises and the client decides.
- Placement Agent: A consultant is hired and paid by the investor to evaluate managers; a placement agent is hired and paid by the manager to raise capital.
- Registered Investment Adviser (RIA): Registered investment adviser (RIA) is a legal registration status; investment consultant is a business function. A US consultant that advises on manager selection as a business for compensation is generally an investment adviser, and RIAs also include many firms that are not consultants.
How it is classified
- Classify an investment consultant as an intermediary and link it to each client through an adviser relationship; never record it as an LP.
- Record whether the relationship is non-discretionary (consultant) or discretionary (OCIO) and whether the consultant is general or asset-class specialist.
- Record a consultant's manager rating or approved-list status as a separate signal from any client commitment.
Common mistakes
- Treating a consultant's positive rating as a commitment. The client's committee decides.
- Assuming consultants are unregulated in the US. Advice on manager selection given as a business for compensation can make a consultant an investment adviser under the Advisers Act.
- Confusing consultants with placement agents. They are paid by opposite sides of the transaction.
- Assuming one consultant per client. Many institutions use a general consultant and one or more specialists.
Edge cases
- A consulting firm can advise one client and act as discretionary OCIO for another, with different fiduciary roles in each relationship.
- A public plan may hire its consultant through a public procurement process, and its consultant contracts and reports may be public records.
- A US consultant that is an investment adviser and also receives payments from managers it rates has a conflict that, under the Advisers Act fiduciary duty, it must eliminate or disclose fully and fairly to clients.
Questions
What is a gatekeeper in private equity fundraising?
Usually an investment consultant, or an OCIO, whose research decides which managers its institutional clients consider. A favourable rating opens meetings, but the client still decides whether to commit.
Do investment consultants have a fiduciary duty?
In the US a consultant that advises on manager selection as a business for compensation is generally an investment adviser and owes its clients a federal fiduciary duty; for ERISA plans it may also be an ERISA fiduciary if it renders investment advice for a fee.
Sources
- Staff Report Concerning Examinations of Select Pension Consultants. U.S. Securities and Exchange Commission, Office of Compliance Inspections and Examinations (staff), 2005-05-16. Status: historical staff report (checked 2026-10-01). pp. 1-6 and n.2 — supports: Consultant services; advising on manager selection is investment advice; approximately 1,742 advisers (IARD data as of 2004-11-02); 24 consultants examined, 13 with services to managers, 14 with broker-dealer relationships; conference fees from managers; 3 of 19 gave no and 16 limited disclosure; 2 undisclosed brokerage referral arrangements
- Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Release No. IA-5248. U.S. Securities and Exchange Commission, Dated 2019-06-05; effective 2019-07-12 (File No. S7-07-18; 17 CFR Part 276). Status: in force (checked 2026-10-01). p. 2 (Introduction); Sec. II (pp. 6-8) — supports: Fiduciary duty of care and loyalty; elimination or full and fair disclosure of conflicts
- 29 U.S.C. 1002 - Definitions (ERISA sec. 3, incl. 3(34), 3(35), 3(42)). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01); para. (42) added by Pub. L. 109-280, sec. 611(f) (2006). Status: in force (checked 2026-10-01). ERISA sec. 3(21)(A)(ii) — supports: Fiduciary status from rendering investment advice for a fee
- The Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2022 (SI 2022/825). UK Government (legislation.gov.uk), Made 2022-07-15; in force 2022-10-01. Status: in force (checked 2026-10-01). Reg. 1(2) (commencement 1 Oct 2022); inserted Part 6 of the 1996 Scheme Administration Regulations — supports: Investment consultancy duties in force from 1 Oct 2022
- The Occupational Pension Schemes (Scheme Administration) Regulations 1996 (SI 1996/1715), Part 6 (investment consultancy and fiduciary management) and Schedule, as inserted by SI 2022/825. UK Government (legislation.gov.uk), Revised text on legislation.gov.uk, accessed 2026-10-02 (Part 6 inserted with effect from 2022-10-01). Status: in force (checked 2026-10-02). Regs. 30, 34(3)-(4), 35, 36 — supports: Scope (relevant trust schemes), definition of investment consultancy services and exclusions, objective-setting and review frequencies
- 15 U.S.C. 80b-2 - Definitions (Advisers Act s.202). U.S. Congress (US Code via LII), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Advisers Act sec. 202(a)(11) — supports: Investment adviser definition
- Applicability of the Investment Advisers Act to Financial Planners, Pension Consultants, and Other Persons Who Provide Investment Advisory Services as a Component of Other Financial Services, Release No. IA-1092. U.S. Securities and Exchange Commission, 1987-10-08. Status: current (statement of staff interpretive position published by the Commission) (checked 2026-10-02). Sec. II.A (pp. 4, 7) — supports: Advice on selection or retention of investment managers can, under certain circumstances, be advising others under sec. 202(a)(11)