Telling Good Consultants From Bad By: Gabriel PotterMBA, AIFA®

As a rule, improvements in technology democratizes access to goods and services. That’s a mouthful, so let me give you an example. When I was growing up, if our family was planning a trip with flights, we would speak with a travel agent to arrange flights, hotels, car rentals and so on. Today, websites like and have rendered basic travel agent services obsolete for many customers. Similarly, a generation ago, individuals and institutions had to rely on brokers or professional money managers to get access to the capital markets. If you wanted to invest, you needed the access only a registered broker could provide. Now, there are a dozen low cost, efficient stock trading programs which provide continuous access to global markets with professional grade tools. Thus, brokers, feeling the pressure, have become aware that the advice and guidance given is their primary value proposition, rather than merely access to the markets. So, the net result is a flood of brokers trying to adopt the “consultant” mantle in an attempt to preserve their business or, at least, staunch the bleeding.

The practical upshot of is that there are a lot of “consultants” who are not committed to the highest principles and best practices of the industry.
So, how can you tell if a consultant is good or bad? Let us also posit a key factor when searching for a consultant: do they accept fiduciary status for all their clients? We suggest that a consultant who acts as exclusively as a fiduciary bears no relation to the stock-broker model of the previous generation. Conversely, if they wear multiple “hats” and can act as salesmen, then you’ll never be sure which role is being adopted. Thus, another way to test for a fiduciary-only consulting is to check on compensation. Ideally, the only source of revenue your consultant should accept is an explicit hard dollar fee directly from their clients; that way, you are ensured that no external financial arrangements would influence the consultant to suggest a particular product.

Of course, there are other important ways to evaluate your consultant. For example, a running track record of the consultant’s performance versus a useful index should demonstrate some aptitude. Furthermore, the education, experience, credentials, sophistication, and cost-effectiveness are also worthy of consideration.

Simply having the criteria is not always enough to make a decision. For instance, you may have a clear understanding of your consultant’s costs, but you might not know how that compares to peers. Similarly, it will require some research upon your part to truly determine if the consultant being used has really selected a fair index to benchmark their performance against. You may see a number of credential designations behind the key consultants—AIF, CRPS, MBA, CFA, CIMA, QPFC, CFP—but which are most valuable to you?

If you feel unqualified making these types of judgments, it might be in your best interest to hire a separate consultant for the sole and exclusive purpose of vetting other firms. This arrangement might seem like an unnecessary complication, but the additional level of scrutiny is actually quite common. A key aspect of demonstrating prudence in any endeavor is comparison to peers, and without a thorough understanding, an uninformed comparison can be damagingly misleading. Consultants are often called upon to benchmark the service providers common to institutions—like lawyers, actuaries, accountants, recordkeepers, and custodians - and to provide an opinion on the relative costs and services they provide. Asking for a consultant to run a peer-driven consultant benchmarking can be a valuable exercise and provide superior matching of client needs to consultant capabilities.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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