Consultants fall short with NFPs: Expert

Asset consultants are commonly employed by large not-for-profits for investment advice; however, their guidance often delivers underwhelming outcomes, according to Stockspot chief executive Chris Brycki.

- Andrew McKean

This is because many asset consultants operate under a vertically integrated model, known in the industry as the 'integrated consultant model,' where they recommend their own products.

Stockspot recently reviewed dozens of pitch decks aimed at not-for-profits and found one of the biggest red flags to be consultants being paid by the very funds they recommend through hidden fees or rebates that aren’t clearly disclosed.

He says consultants’ recommendations are clouded by their business model structures, which effectively turns them into sales representatives for their own fund or fund-of-funds.

Transparency around those structures is "pretty poor", he says, making it difficult to determine how much of the fees go to the consultant versus the underlying fund managers. It’s also hard to glean whether the managers being recommended have been compromised by their willingness to split fees, Brycki notes.

The outcome is that not-for-profits can be steered into “expensive, complex strategies,” often filled with active managers and alternative assets that “destroy value over the long run” and waste donor money, he says.