US – A mutually beneficial arrangement between the Bank of New York and consulting firm Wilshire Associates has emerged following questions from two US congressmen.
The activities concern Wilshire effectively receiving payments for referring clients to the bank’s dealing operation and came to light as part of a probe of conflicts of interest in the US pension industry.
The arrangement goes back to at least October 2004, when Wilshire sold the execution and commission management parts of its former brokerage business to the bank’s BNY Brokerage arm for an undisclosed sum.
“As part of that sale, Wilshire Associates agreed to refer its Wilshire Analytics clients to BNY Brokerage” or its affiliate Westminster Research Associates (WRA), Wilshire said in response to questions from the congressmen.
Wilshire added it “has an incentive for referring its Analytics clients to BNY Brokerage and WRA broker-dealers for third-party agreements because Wilshire Associates may be entitled to contingent payments from BNY Brokerage” relating to the 2004 sale agreement.
The two firms said in the September 21 2004 announcement of the deal: “While Wilshire will not solicit clients of its other business units to use BNY Brokerage services, clients of Wilshire Analytics who currently use Wilshire’s brokerage services will have the option of using the services of BNY Brokerage as a way of reducing direct expenses.”
Wilshire acknowledged in its response to the congressmen that its potential revenue from the contingent payments could “adversely affect” its own objectivity. It said that the financial incentives relating to the sale cease as of October this year.
A BNY Brokerage spokesperson was not immediately available for comment.
Wilshire was asked whether it receives any payments from money managers that it recommends, considers for recommendation or “otherwise mention” to its pension fund clients.
It said: “Yes… Wilshire Associates receives a significant amount of its total revenues (over 40% in 2004) from the sale of analytics solutions and services that are provided by Wilshire Analytics.”
But it said its policy is that “all recommendations concerning portfolio managers made to investment consulting clients be based solely on the best interests of the client and without regard to any revenue that Wilshire Associates receives… from portfolio managers for services provided by us”.
The comments come in a letter from the Pensions Benefit Guaranty Corp. to Democratic congress members Edward Markey and George Miller.
They were seeking information on the PBGC’s relationship with its investment consultant Wilshire, in the light of the fact that Wilshire has been subpoenaed by the Department of Labor' over potential conflicts.