SEC report finds US consultant conflicts
US – The US Securities and Exchange Commission has found that pension consultants in the US have to do more to identify conflicts of interest.
The regulator, which looked at 24 pension consulting firms, found that more than half provided products and services to both pension plan advisory clients and to money managers and mutual funds on an ongoing basis.
And most have affiliated broker-dealers or relationships with unaffiliated broker-dealers “which may provide a mechanism for money managers to compensate pension consultants, perhaps as a way to curry favour with the pension consultant”.
The SEC also found that many consultants have affiliates that also provide services to pension plan clients. And it said that many also do not “adequately disclose material conflicts of interest arising from these practices to their clients”.
The SEC said that “some pension consultants appear to have erroneously concluded that they are not fiduciaries to their clients”.
“Its clear from our examinations that many pension consultants must do more to identify conflicts of interest in their activities, and to take steps to mitigate or eliminate those conflicts,” said Lori Richards, director of the SEC’s Office of Compliance Inspections and Examinations.
“We are releasing this report to alert the pension consultant community to these findings, and, based on what we found, we urge pension consultants to take a hard look at their disclosure and make improvements.
“And, when a consultant holds itself out as providing unbiased, objective advice, that obligation must be met.”
The SEC had been investigating the industry for a year. An earlier news report by Reuters said the probe hass led to referrals to the SEC’s enforcement arm.
Consulting firms such as Mercer, Watson Wyatt and Frank Russell Co. had been contacted by the SEC, Reuters added. Spokespersons of Mercer, Watson, Frank Russell and Hewitt Associates did not immediately respond to requests for comment.
There is no suggestion of conflicts of interest in the UK and Europe. Industry figures contacted by IPE have refuted the idea.
But a former SEC lawyer who runs a firm which investigates pension fraud and the investment management industry in the US disagrees.
“I am quite certain that the consulting firms operating in Europe have the same conflicts,” Ted Siedle, president of Benchmark Financial Services, told IPE earlier this year.
“I say this for two reasons. First, some of the European firms are international operations and what they do in the US they do abroad.
“Also, there is little money to be made providing independent advice. Thus, firms naturally migrate to conflicting sources of revenue to supplement their income. They can make far more money selling access than in providing objective advice.”