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Definition and scope
According to Steele 'consulting' is ”any form of providing help on the content, process, or structure of a task or series of tasks, where the consultant is not actually responsible for doing the task itself but is helping those who are.”

A commission of experts in the USA has defined ‘management consulting’ as ”an independent and objective advisory service provided by qualified persons to clients in order to help them identify and analyze management problems or opportunities. Management consultants also recommend solutions or suggested actions with respect to these issues and help, when requested, in their implementation.”

Kubr combines – in collaboration with an international circle of authors – the contents of these two definitions and concludes: ”Management consulting is an independent professional advisory service assisting managers and organizations to achieve organizational purposes and objectives by solving management and business problems, identifying and seizing new opportunities, enhancing learning and implementing changes." The term ‘management consultant' can be defined as “a universal term for any professional who provides assistance to others, usually for a fee.” All four definitions include the essence on which consulting is based: independent assistance with problem solving. The existence of a problem is, thus, constitutive for a consulting demand. Unlike the expert who solves a problem on his own, the work of a consultant is characterized by interaction with the client in solving the problem. This interaction is reflected, on the one hand, in the consultant’s understanding of the client’s affairs and, on the other hand, in the collaboration between consultant and client.

Moreover, the criterion of specialization in the expert sense is not sufficient since independence is another constitutive element of an external consultant: “Outside advisors brought specialized knowledge, not otherwise available, into organizations that faced problems that internal staff members could not easily resolve,” but “it is not their specialization that sets consultants apart but their continuing independence from the corporation.”

Roles and functions
In 1982, Turner presented a hierarchy of eight levels that illustrate the consulting tasks in a differentiated manner thereby contributing to an even more detailed definition:
 * 1) Information conveyance
 * 2) Diagnosis of current state to redefine the problem
 * 3) Problem resolution
 * 4) Recommendations for action based on the diagnosis
 * 5) Implementation support
 * 6) Development of a joint understanding and commitment
 * 7) Support for organizational learning
 * 8) Permanent improvement of organizational effectiveness
 * 1) Permanent improvement of organizational effectiveness

According to Fink, management consultants ‘make’ management concepts. They invent the basic principles, design methods and instruments, and, that way, solve the problems of their clients. Insofar, also knowledge transfer is, besides problem solving, a dominant function of consulting ; thus, knowledge is a central parameter in the definition of consulting. Besides law firms, auditing companies, and also investment banks, investment consultants are among 'professional service firms' that perform particularly knowledge-driven services. Other functions that can be classified as latent are:


 * 1) Political function, i.e., use of a consultant to assert unshakeable notions and already a-priori made decisions.
 * 2) Enforcement function, i.e., use of a consultant to support the achievement of a consensus in case of still variable notions and open decisions.
 * 3) Legitimation function, i.e., use of a consultant to block or at least reduce attribution of unfavorable or unpleasant developments to the management in charge.
 * 4) Interpretation function, i.e., use of a consultant as (external) conversation and sparring partner to obtain new insights and perspectives through contemplation.

Regarding the political function of consultants, McKenna states that “administrators have employed outside advisors for thousands of years, but their counsel has traditionally been political, not commercial.“

For a deeper understanding of consulting in general, it is advisable to take a look at the roles. Since it is not expedient or even possible in the framework of this study to enumerate all the possible roles of consultants as “the list of roles is endless,”  the following figure offers an integrative observation of roles, functions, and tasks of consultants.

The term ‘investment consultant’ is not a protected professional title. This is also the reason for the lack of any official or generally recognized, clear and unequivocal definition. The U.S. Securities and Exchange Commission (SEC) subsumes investment consultants under the term 'investment advisers:' “A person that advises as to the selection or retention of an investment manager is considered an investment adviser”.

Yet, according to Mohe et al. the lack of a profession in the socio-professional sense […] does not necessarily [mean] the leave-taking from notions of professionalism as defined in a knowledge-sociological sense.

Literally, the term ‘investment consultant’ refers to a consultant in matters of the asset side of a balance sheet. Consultants who are solely specialized in the analysis of the liability side and in actuarial consulting are, strictly speaking, called ‘pension consultants.’ The meaning, however, covers in fact a much wider scope than that.

If the term ‘management’ is replaced by ‘investment’, the above-mentioned definitions of management consulting largely provide a fitting template for a practice-oriented real definition  of investment consulting:

Investment consulting is an independent professional consulting service, which interactively – directly and as an intermediary – supports institutional investors and their decision-makers through solving investment problems to optimally achieve their financial objects and goals.

For systematic specification of the roles of investment consultants, the classification of the roles of management consultants according to Schein will be applied. Investment consultants' activities, as well as value-creation fields respectively, will be classified along those of management consultants and will be dealt with extensively and in a detailed manner in the following chapters.

In the framework of the ‘physician-patient relationship’ according to Schein, a customized solution is recommended following a comprehensive and detailed analysis of the client’s situation. In investment consulting, the following value creation steps must be attributed to that class: definition of investment policy, asset-liability analysis, and strategic asset allocation. With the ‘purchase of expertise’ according to Schein, the client makes use of the specific knowledge and expertise of the consultant in this area: These include such services as manager selection, allocation, and monitoring. In ‘process consulting’ according to Schein, consultants assist with their methodological competences, among them, services implementation as well as investment controlling.

The essence of investment consultants’ classic roles – i.e., in the narrow sense – is that “the role of the investment consultant is to manage, not to make investment decisions.”  In the same way the general roles of management consultants also apply to investment consultants, as do, by nature, the general functions. Investment consultant-specific functions pertaining to investment-related questions are the quality assurance function and the intermediation function.

Through professional ‘screening’ as well as due diligence in the framework of manager selection, investment consultants reduce an information asymmetry that basically exists at all times, thereby contributing to an increase and respectively assurance of their clients’ quality of decisions. The intermediation function is the result of investment consultants being effectively active as ‘mediators.’

A systematic classification and distinction enables an abstraction from the practice-oriented real definition and, that way, leads to a theory-oriented real definition of investment consulting:

Investment consulting is an external, [basically aperiodic,] problem-specific and function- resp. area-specific consulting service, which represents a form of financial consulting for institutions.

Typology and segmentation
The roots of modern consulting are in the USA and can be traced back to the first half of the 19th century. Foster Higgins (1845), Sedwick (1858), and Arthur D. Little (1886) are considered to be the first consulting companies, whereby especially the latter is seen as the precursor of management consulting.

In the 1820s, the choice of professional and external management services increased rapidly. A broad spectrum of options developed through consulting-related professions such as lawyers, accountants, and bankers. The profile of classic management consulting such as we know it today emerged only with the establishment of eventually world-renowned consulting companies such as Arthur Andersen (1913), Booz Allen Hamilton (1914), and McKinsey & Company (1926). Very beneficial in this context was the separation of commercial and investment banks through the Glass-Steagall Act of 1933. Until then, numerous tasks that nowadays are part of the core business of management consulting had been performed by commercial banks. Besides the prohibition of emission of and trade with shares, this law also prohibited commercial banks to engage in business consulting and reorganization on behalf of their corporate customers.

In the second half of the 20th century, further important consulting companies were founded such as The Boston Consulting Group (1963), Roland Berger (1967) as well as Bain & Company (1973). Also during that period, many consulting companies began to accelerate their internationalization and expanded their activities into Europe. US-American companies have been dominating the management consulting market worldwide ever since.

The following figure provides a chronological overview of the establishment of consulting companies in general and, thus, of the genesis and historical development of investment consulting:

The above chronology of company foundations includes classic management consultants, consulting companies focused on auditing (cursive) as well as on pension and investment consultants (bold). The history of how the consulting market evolved can be divided into three major periods, which represent the defining stages; these are: initialization, professionalization, internationalization, and concomitantly differentiation as well as consolidation. The following figure shows the attribution of investment consulting to periods and stages of the consulting market:

The time before 1930 can be described as initialization since it was only then that today’s consultant profile evolved. The establishment of Buck Consultants (USA) and Hymans Robertson (UK), two investment consultants still active to this day, occurred already at that stage. The subsequent years into the 1960s are considered to be the professionalization stage since with increasing demand from industrial companies, methods and concepts kept developing. The term ‘management consultant’ took roots. The establishment of several investment consultants operating worldwide today falls in this stage: Russell Investments, Watson Wyatt as well as Hewitt. The 1970s were both the start of internationalization, which brought about the tapping of markets in Europe, Asia, and Latin America, and of differentiation, through which small consulting companies focusing on specific core areas evolved. In that phase from 1972 until 1982, a number of still operating US-American pension and investment consultants were founded: Callan Associates, Wilshire Associates, Cambridge Associates, William M. Mercer as well as Aon. Therefore, this decade can be described as the ‘cradle of modern investment consulting.’ Because of the increasing importance of computers, consulting companies specialized in information technology eventually evolved in the 1990s.

The origins of the consulting profession are not just in management consulting in general, but, more specifically, also in strategic consulting (strategy). Later on, the consulting fields 'operations management' and 'information technology' developed.

From the above figure it becomes evident that most of the large traditional management consulting firms focus only on three activities. Thus, a ‘break’ can be discerned, which divides the segments into two halves. The providers in the segments human resources, actuary/pensions as well as investments in the second half are to a large extent different firms from those in the first half.

Furthermore, it becomes apparent that several firms in the second half are among the ‘Top 10’ in several segments. Nevertheless, globally active firms originating mostly from the USA dominate both the first and second half. Myners states that investment consultants in the UK have gained market strength to a large extent based on their actuarial background.

Moreover, it is notable that consulting units that are (PwC and KPMG) or were (Accenture ) part of an auditing company are active in the segments of both halves, but not in the fringe segments. Nevertheless, the U.S. Securities and Exchange Commission (SEC) increased its pressure on auditing companies to part with their consulting units. To bypass this requirement, all large firms preventively gave the business field ‘consulting’ a new designation, ‘advisory’. Also, there are no longer any ‘consultants’, instead there are ‘advisors’.

Market Size and Structure
The availability of valid data providing information on industry-wide demand – that is, use of investment consulting by institutional investors – or supply – that is, size and market share of individual investment consultants – is exceedingly scant. In this respect, there is a significant lack of transparency in investment consulting. The reason here is the small number of organizations that observe investment consulting on a continuous basis and in detail and that aggregate relevant data and information. This is particularly true for the EMEA and APAC regions, as well as for the global perspective. Moreover, existing data are not specific, i.e., 'assets under advisement', 'assets under management', 'assets selected', or 'mandates selected' are seldom clearly disclosed. A distinction between gross and net volume – like in asset management – is equally lacking.

In Anglo-Saxon countries around the globe, i.e., from North America through the UK and South Africa to Australia and New Zealand as well as the culturally British-influenced centers such as Hong Kong and Singapore, investment consulting is, in general, firmly established in asset management as part of the entire process.

In the USA, the market for investment consultants is concentrated on just a few addresses that are also among the leading providers worldwide. General use of investment consultants is at about 80% both in the USA and UK. Similar as in the USA, the market for investment consulting in the UK is limited to just a few addresses. Just four providers cover here a market share of 70% and the nine largest providers have market coverage of almost 90%. These are clearly oligopolistic structures and evidence of insufficient competition. The Herfindahl-Hirschman Index for investment consulting is at about 1800 in the UK. According to the definition of the USA Antitrust Division, an index above 1000 is already considered worrying. This means that in such a market environment, even a beauty contest for the selection of investment consultants cannot be evidence enough for sufficient competition.

In Continental Europe, rates of general use of investment consultants are far below those of the Anglo-Saxon-influenced world. In the years 2005 to 2009, maximum rates in the individual countries were between 36% (2006) and 59% (2008). The reason for this high dispersion is the heterogeneous regional universe. Nevertheless, an increase can be discerned.

The following figure shows the twenty largest investment consultants in the USA in 2010 with regards to assets under advisement:

However, this ranking can be no more than a snapshot for orientation purposes and only provides a temporary insight into the market structure since the speed and scope of changes – similar to those in asset management – have rapidly increased in recent years as a result of mergers and takeovers and will further accelerate.

The concentration in investment consulting is quasi carried over to asset management since in the context of manager selection by investment consultants, an equally high concentration on a small number of asset managers can be identified.