Sixteen years ago, SEI stopped serving as a consultant to retirement plan sponsors—in part because it was concerned about questionable industry practices like asset managers paying consultants.

“(The consultant industry) can be conflict prone,” said Paul Klauder, vice president and managing director of SEI’s institutional group.

With the U.S. Department of Labor poised to toughen rules for consultants and advisers to retirement plans, industry practices are under a new spotlight. And while consultants are unlikely to follow SEI’s lead in exiting the business, they may soon be a little more careful about the work they do, according to Denise Valentine, senior analyst at research firm Aite Group, LLC.

The DOL’s proposed new rules are “a big event,” she said. “In layman’s terms, it means (retirement plan providers) can sue more people and have a leg to stand on.”

The DOL’s proposal would expand the number of consultants and advisers that are legally liable for their advice to retirement plan providers. Specifically, it would hold to a more stringent “fiduciary standard” firms that offer their clients investment advice.

Broadly, a fiduciary standard compels firms to act as if a clients’ interests are their own. That is often not the case today, said Klauder.

For instance, he notes, consultants sometimes accept payment by asset management firms whose products they are in a position to recommend. A Government Accountability Office report last year said that is often the case. Under the fiduciary standard, those companies would have to clearly disclose such potential conflicts of interest, said Valentine.

There are less egregious examples of non-fiduciary behavior. Consultants frequently present a short list of investment managers to a pension plan without recommending one above the others. If the client picks a manager that does a poor job, the consultant again presents four firms to choose among.

“The plan ultimately picks from the short list, and the plan ultimately has fiduciary responsibility,” said Klauder.

The sense among some institutional investors that their consultants don’t have “any skin in the game” has helped SEI position itself as an alternative, said Klauder.

Over the past five years, SEI says, its institutional outsourced assets under management have grown by 41%. The company’s institutional business has added 212 global institutional clients and over $18 billion in new assets under management over that period.

The Oaks, Pa.-based company offers manager-of-managers services to retirement plan sponsors. It is a co-fiduciary in the overall investment management in clients’ plans, and a complete fiduciary in the hiring and dismissal of money managers.

“We say, ‘we have a process for vetting managers,’” said Klauder. “‘You hold us responsible for the results.’"

Most of the big consulting firms have a two-tier model, he noted. One is a non-fiduciary model, and the other is a more-expensive fiduciary model.

Should the DOL’s new rules go into effect, all consultants will be fiduciaries, period, Klauder said.

Facing a tougher set of rules, consultants would probably take extra steps to protect themselves, said Valentine. Those steps might include additional regulatory reporting and the use of very specific contract language about what is expected from both the consultant and client, she said.

“Consultants will do what they’ve always done, although they may be crossing their T’s and dotting their I’s more,” said Valentine. “But they would not have survived in this business if they didn’t have proper processes and due diligence.”

The DOL’s fiduciary standard initiative is similar to one that pertains to retail financial advisers and is unfolding at the Securities and Exchange Commission.

The SEC is working to create a single standard governing how both advisers and brokers give advice to their clients. The result is expected to be a common fiduciary standard, released sometime in early 2011.

The standard would correct what critics say is a system that can hurt investors. Professional advisers have long been held to a strict fiduciary standard, while brokers operate under a looser set of requirements known as the suitability standard.

Under the current system of regulation, critics say, brokers who present themselves as advisers are able to get away with things like steering clients into investment products that pay higher sales commissions.