Consultants Find Success as OCIOs

Those findings come out of a research report from Cerulli Associates, a Boston-based research and analytics firm serving the retirement planning market. In “The Evolving Investment Consulting Industry and Business Model: Opportunities for Institutional Asset Managers,” researchers provide insights on how financial consultants can generate business as more institutions look to outsource investment activity.

Consultants surveyed for the report consistently stated their OCIO business increased significantly in 2013, and that they are anticipating growing interest from institutional clients in particular.

“Over the past decade, institutional investors have been seeking more proactive advice and ceding portfolio decisionmaking as investment options have grown increasingly complex and markets have become more volatile,” Michele Guiditta, an associate director at Cerulli, says.

Among other topics, the report also analyzes the top business challenges faced by investment consultants. Increased competition due to mergers and acquisitions among investment consulting firms was considered the top threat to consultants, with 90% of those surveyed calling merger activity either a “major” or “moderate” threat to their bottom line.

The report finds industry consolidation has been driven predominantly by consulting firms’ desire to grow business and revenue. Those surveyed said mergers have offered firms a quick way to expand and diversify client bases, grow assets and enhance service offerings.

For those boutique and midsized firms choosing to remain independent, the report finds many instead choose to specialize in a particular client segment or service offering.

Looking more widely at the institutional financial planning market, Cerulli’s report suggests investment consultants maintain a high level of influence. In fact, asset managers surveyed for the report said consultant-intermediated business accounts for slightly less than 60% of total asset flows, with the remainder coming mostly from direct sales.

Further segmentation of the data by firm size shows consultant-generated business was greater for smaller firms—those with $10 billion or less under management—accounting for 75% of small firms’ asset flows. For those firms with $50 billion or more under management, the report shows 48% of assets flows were consultant-intermediated.

Sample findings from the report, along with the table of contents, is available here.