Investment Consultants Reevaluate Priorities as Several Long-Tenured, Top Names Change Firms

Art by Klaas Verplancke

Just as in many other industries, the Great Resignation left its impact on the investment consulting business, as some long-time consultants moved to other firms or have left the industry entirely.

A few standout examples include Troy Saharic leaving Mercer after 26 years for NEPC two years ago and Bill Ryan joining NEPC a year ago after being at Aon for years. The impact of the COVID pandemic caused many people to reevaluate their priorities, whether it’s for quality-of-life issues, pay or other reasons. There’s not much hard data to underpin some of the job switching, but industry observers say anecdotally the movement stands out.

Dick Graf, managing partner at Corinthian Cove Consulting, said the turnover is much higher than it was in the past 10-plus years when he was CEO of Marco Consulting Group. During that time, “I had only one consultant leave and go to another consulting firm. And I hired one from another consulting firm, but that was it. You just didn’t see it, so this is a new phenomenon,” he says.

Laura Pollock, founding partner at Third Street Partners, a talent strategy firm for asset managers, says consultants who were at their previous companies for a long time were more willing to look outside of investment consulting because the pay was better.

“The senior folks, the people who have been there a long time… they’ve gotten calls, they’ve gotten introductions to other opportunities. And so, if they haven’t made the move, they’re thinking about it,” she says.

But another big reason could be the shift to the outsourced chief investment officer model, several sources said. As firms add products beyond pure consulting, such as OCIO, with its team-based platform model, consultants may feel pressure to bring in revenue, Graf says.

“The consultants are being told, ‘hey, you have to bring in business. Now you have to be a revenue generator. And a lot of them don’t like that and they may go to where they don’t have to do that. Maybe that’s some of the movement,” he says.

Davis Walmsley, principal, asset management global advisory services, at Broadridge Financial Solutions, concurs, saying the OCIO model requires different skills than the one-on-one personal relationship of consulting. It’s less providing feedback to the pension plan, but often selling the OCIO services. “Consultants are very good at giving advice, but a lot of maybe aren’t so interested in doing the cold calls and doing the selling part of business,” he said.

The move to OCIO may also have some consultants wondering where their place might be at their long-term firm, Walmsley says. With OCIO there’s less need for traditional advisory services where consultants spend time doing quarterly reviews with pension plans explaining manager performance, and it’s more about funding status, investment shifts and portfolio return.

“It shifts the nature of the relationships,” Walmsley says. “Some consultants maybe [thinking] ‘as I look forward five to 10 years, this industry is sort of shifting, and maybe it’s not going to be where I want it to be.’”

Is Business Following Consultants?

Jeanne Branthover, managing partner, head of the global financial services practice at DHR Global, an executive search firm, says it’s very likely consultants are bringing over business to their new firms.

“Successful consultants wouldn’t have moved if they couldn’t take their customers or clients with them,” Branthover says.

It’s unlikely new firms would have made employment contingent on consultants bringing over new business, but the firms may hope the new hires are prestigious enough in the industry to attract new clients.

“A huge part of it, too, is ‘we’re hiring you because we’re hoping that you can enhance the revenue of the firm, not just by the investment knowledge, but by your following,’” she says.

NEPC saw a number of consultants join from competitors, says Mike Manning, managing partner at NEPC. Of a headcount of about 350, between 55 to 60 of its employees joined from other consulting firms, and nearly half of those came in the past three years, he says. Additionally, about 35 of the new consultant hires lured from other firms were in senior-level roles. In addition to Saharic and Ryan, in July, four consultants came from Goldman Sachs Asset Management, a team that had formed while at Rocaton Investment Advisors. Goldman Sachs acquired Rocaton, an independent advisory firm, in 2019.

Manning declined to say if these consultants brought over business when they made the switch, saying NEPC doesn’t talk about clients. However, he said there are a few potential drivers that may explain why consultants might leave their firms. Some of it may be to go switch jobs to join a money manager or a plan sponsor, but for consultants who want stay in the business, many seek a place with long-term stability.

NEPC has had success luring experienced consultants with good client relationships because of its ownership stability, (as the largest owner has less than a 10% stake,) a 70-person research team, and not needing to take on too many clients, Manning says. Cultural fit on both sides is important, he adds.

But another lure is being able to focus on providing investment consulting and not selling OCIO services or other product lines, where there are “potential conflicts that can eat away at the trust that you have with your clients…. It’s really a pure play investment consulting,” he says.

Reevaluating Relationships

In addition to a strong consultant group, NEPC is also growing its OCIO business. Corporate pension funds, endowments and foundations are attracted to OCIO, while public pension funds, larger endowments and health care institutions—organizations that have their own investment teams—still wants advisory, Manning says.

Not all  plan sponsors are interested in OCIO, and small to midsized plans seem to want to stick with consultants Walmsley says, adding that Broadridge has heard these smaller plans say they’re “somewhat frustrated” with the push to OCIO.

“I think it’s prompted some of them to move their relationships or to reevaluate their relationships and potentially move to a firm that only does traditional consulting and doesn’t focus on OCIO,” he says.

Whether or not all of this turnover is good or bad for the consulting industry is debatable. Mike Fontaine, principal, Third Street Partners, says some turnover is good as it can bring different perspectives and can often enable promotion from within. But Graf says if a firm has too much turnover, it can make asset question the organization’s stability.

Organizations are likely to see their relationship  asbeing with the consultant more than the firm because the relationship is with the , so firms need to be thoughtful about the transition of the account. Graf says if management is smart, “they know how to plug in a new consultant at a certain relationship based upon the nuances of that relationship.”

Relationships matter in consulting, agrees Fontaine, who once was director of manager research for Willis Towers Watson, now WTW. But he suggests that as OCIO becomes more popular, it may keep pension plans and plan sponsors more loyal to the firm than to a particular consultant.

“Now it’s about platform capabilities. The lines blur a little bit more towards traditional asset management, where you’re thinking about investment performance, client service, etc. It’s possible that with the move to OCIO, that clients would be less apt to follow any single one departure,” he says.

If consultants retire, it is an opportunity for asset owners to review relationships, especially as a lot of pension plans are actively being courted to make the switch to OCIO, Walmsleys says. It’s also an easy way to transition from traditional consulting “as opposed to actually having a conversation of pushing somebody out of his or her role,” he adds.

The current economic climate may change how consultants look at switching firms. Branthover says she’s watching to see what happens with recruiting. It’s possible that firms and consultants might not want to make any changes in case a recession comes.

“People are becoming more cautious. Companies are becoming more cautious. Money and investments are definitely being scrutinized more than ever. And so therefore, if you are comfortable with X firm, will you feel good about moving,” she said.