Holding investment consultants to account is a healthy exercise. And indeed, one recent study on investment consultants’ recommendations has attracted headlines and controversy.

‘Picking Winners? Investment Consultants’ Recommendations of Fund Managers’ (Jenkinson, Jones, Martinez, September 2013) asserts that investment consultants are unable to consistently add value by selecting superior investment products. Basing the conclusions of analysis of Greenwich Associates data, the authors conclude that the portfolio of products recommended by investment consultants since 2000 has returned 7.13% annually on an equal weighted basis – exactly 1% less than a portfolio of products not recommended. This conclusion relates to one asset class, US equities.

Consultants’ buy-lists are still very important. The authors of this study cite research claiming that 82% of US public pension plans sponsors and 50% of corporate sponsors make use of investment consultants. They advise on some $13trn (€9.6trn) of assets.

Yet in Europe as a whole, that figure is lower on average. The 2011 IPE Invesco European Institutional Asset Management Survey put the figure for consultant usage at less than 50% for all pension funds, public and private, across Europe. So consultants’ influence is not all-pervasive, even if it is strong.

In a related paper, How Institutional Investors Ignore and Inform their own Expectations (Jones and Martinez, August 2013), the authors conclude that institutional investors allocate to funds that are recommended by consultants and which have performed well recently, even if this conflicts with the judgement of pension fund investment staff

Importantly, the authors conclude that past performance and consultant recommendations are more defensible factors to stakeholders (partly because they are more quantifiable) than the judgement of the in-house staff; in the same way as (in the famous advertisement) “no-one gets fired for buying IBM”. Even skilled investors cannot verify the accuracy of their own decisions ex ante.

As ‘money doctors with trust’, consultants offer a hand-holding service and a shield against headline risk and potential litigation, because of a perception that consultant advice somehow indemnifies trustees against legal action.

The first study looks at fund management recommendations, but investment consultants have widened the scope of their activities considerably in recent years and have all positioned themselves as fiduciary managers or implemented consultants. It is no longer just about selecting the ideal manager for European credit or US small caps, it’s about generating investment strategies and ideas that fit with an investor’s overall goals.

Large investors also have many more tools at their disposal. If they want to take a position in a particular asset class or geography they can do so quickly and cheaply using derivatives or ETFs. Many large funds are improving their own capabilities in the grey area between strategic and tactical asset allocation, to take medium-term positions.

For this they rely on a diverse source of longer-term views. The Kay Review in the UK noted that too few people in the investment value chain are remunerated for their skill at allocating capital over the long term and consultants should be the ones providing that sound long-term focused strategic investment advice.

The problem is that measuring the effectiveness of that advice is not as straightforward as measuring the performance of fund recommendations.