Navigating the field of mission investing can be challenging. The field is rapidly evolving, and the range of terms, strategies, objectives, and resources available to investors can be overwhelming. For investors seeking strategic guidance or technical support beyond the services provided by an investment manager, Confluence often recommends engaging a strategic consultant.
These consultants (some of whom also serve as registered investment advisors, or RIAs), assist investors to determine impact priorities, evaluate investment advisors, structure and source deals, and take care of legal details, among other services. Whether working with foundation boards, investment committees, or staff, strategic consultants have the ability to shape bespoke services around the unique needs of each client.
Nick Flores, Director of Impact Investing at The Caprock Group, moderated a webinar discussion titled Finding the Right Strategic Consultant, in which participants shared the benefits that strategic consultants can offer and provided valuable insights to help firms match with the right strategic consultant for their mission. He spoke with Dan Chu, Executive Director of the Sierra Club Foundation and Confluence Board Member, and Kristin Hull, Founder and Chief Investment Officer of Nia Impact Capital.
Flores opened the discussion with a quick summary of the strategic consulting industry, including some of the challenges investors face when choosing a firm. Flores’s firm, Caprock Group, is an RIA that offers advisory services to individual investors, families, and foundations around long-term financial goals, building an investment strategy, and their ongoing asset allocation process. RIAs are bound by a fiduciary duty to put the needs of their clients ahead of their own when providing investment advice. However, these types of services only comprise a small portion of the strategic consulting industry.
Clients often need advice on various aspects of the impact investing space. Strategic advisors can help these clients with specific needs, which range across a spectrum of activities. “There are dedicated consultants that can offer a wide variety of strategic advisory services,” Flores explained. Further elaborating the difference between an RIA and a strategic consultant, he explained how strategic consultants should be hired for activities like program-related investments (PRIs) or to lead an RFP process that will lead to hiring an investment advisor, not RIAs.
Examples of the Use of Strategic Consultants
Kristin launched the discussion by sharing how, in 2007, her endowment foundation utilized strategic consultants to align its investments with its goals. Hull was particularly interested in place-based investing in her local community in Oakland and bringing impact investing to public markets, which her consulting firm, being in its very early years itself, weren’t working on at the time.
Kristin expanded her use of strategic consultants in focused ways including conducting the research into public markets that would eventually lead her to found her firm, Nia Global Solutions. Detailing her experience working with a service provider that manages some of Nia’s administrative operations, Hull explained how they are great partners for grant administration purposes, but not the best fit for PRIs or asset management. Her experiences underscored the importance of choosing advisors that fit a project’s needs.
In addition, Dan shared his experience of working with strategic consultants in a variety of ways. In an effort to make all of their assets mission aligned and fossil free, Sierra Club Foundation worked with their RIA to update their investment policy statements and associated policies, but Dan said the foundation still had ‘higher-level’ needs to get further clarity on their strategic role with respect to their partnership with Sierra Club, the environmental organization.
Eventually, Sierra Club Foundation retained a strategic assessment consultant, who provided insights that helped the foundation better understand and implement its mission and role as fiscal sponsor and 501c(3) arm of Sierra Club. “Coming out of that, we decided to create a high-impact investment fund,” Dan said, that focuses on place-based investment opportunities in underserved communities that also have climate solutions, with preservation of capital as their return expectation. It was an important step forward for the Sierra Club Foundation, and strategic consultants helped lead the way. Other use cases of consultants included strategizing around the Foundation’s shareholder engagement and advocacy work and planning thematic convenings.
Ensuring a Successful Relationship
Dan said the experience helped him learn that successful relationships with consultants rely upon a few key factors. Clarity on the outcomes that clients want from the consultant relationship helps drive accountability, and a good consultant should always ask clients that question before determining the scope of work. Once there is clarity on the expected outcomes, the firm should also have an honest internal discussion on whether they have the resources and the organizational commitment to follow through with the consultant’s recommendations.
He also stressed the importance of identifying which expertise and resources a consultant can bring to the table. Firms should also evaluate what relationships and networks consultants bring to the table, in addition to technical expertise. Dan recommends that firms have detailed discussions with a consultant’s references to determine if the consultant’s services align with their project goals.
Finding a Strategic Consultant
When the time comes to start searching for a strategic consultant, Dan recommended that firms utilize Confluence Philanthropy and other networks, and interact with colleagues in order to find the best candidates. Kristin agreed that networking is important. “Confluence is such an amazing resource in itself,” she said. “Talk to others about the types of consultants that they are using.” Through its Finding the Right Strategic Consultant Guide, Confluence provides its members with a listing of qualified strategic consultants and their corresponding areas of expertise.
Advice for Strategic Consultants and the Clients
For consultants, Kristin and Dan advised that they should continue to learn and stay abreast of the developments in the field, so they can continue to provide value to their clients over extended periods. A good consultant should also be sensitive to the ways an organization works, the power dynamics, and the politics behind decision making. Being adept at navigating this politics would help them achieve greater success.
Both panelists agreed that firms need to broadcast their message to attract like-minded partners. “The power of social media is huge and your point of view is going to be really exciting,” said Kristin. Dan also encouraged firms to broadcast their message. “Put out there what your philosophy is and what your experiences are with that and it will help people find you,” he said. They also emphasized that values alignment between the organization and the consultant are very important, though diversity of perspectives is very welcome. The best consultants also know their capabilities and limitations and are honest about what they can realistically achieve.
Dan added that smaller foundations should use consultants more frequently for discrete projects and time-bound work, rather than trying to build organizational capacity. Kristin concluded that it is high time that we start using consultants more frequently in the impact investing space, as external perspectives can add significant value to an organization.
