SEC investigates pension consultants

By John Waggoner, USA TODAY

5/16/2005

The Securities and Exchange Commission released a study Monday saying that pension consultants might not be disclosing conflicts of interest — which could mean workers and investors are not getting the best money managers for their retirement plans... The SEC study surveyed 24 of the nation's 1,700 pension fund consultants and found:

• More than half of the consultants surveyed provided services to pension funds and money management firms, raising the potential for conflicts of interest. For example, 10 sold software to money management companies to analyze clients' portfolios. The software cost as much as $70,000 a year.

• More than half of the consultants offered investment conferences free for clients, but charged money managers a fee. Money managers weren't required to go but might have felt pressured to do so.

• Many consultants required money managers to direct a portion of their stock and bond trades to a broker affiliated with the consultant. By doing so, the consultant's fees were buried in the cost of brokerage. Also, the fund might pay more for trades than they would elsewhere, which means lower returns for investors.

• Many consultants provided services, such as investment management, to pension plans through affiliates. That's not wrong, but the consultant has to disclose potential conflicts.

• Many pension consultants don't consider themselves to be fiduciaries. Fiduciaries have a legal obligation to act in their clients' best interests.

"We wanted to quickly alert those 1,700 pension consultants that they do have a fiduciary obligation, and that they have to live up to it," Richards says.