Human Capital & Careers

Pension Plans and Conflicted Consultants

Many pension consultants do not adequately disclose material conflicts of interest, according to the SEC; some ''appear to have erroneously conclud...
Stephen TaubMay 17, 2005

The Securities and Exchange Commission has released a report critical of the conflicts of interest in the practices of some pension-plan consultants.

“Although investment advisers owe their clients a fiduciary obligation — including to adequately disclose all material conflicts of interest — some pension consultants appear to have erroneously concluded that they are not fiduciaries to their clients,” the SEC concluded.

(Deputy editor Ron Fink also notes that if the performance of retirement-plan fund managers should suffer, CFOs may have a harder time fending off charges of not fulfilling fiduciary obligations under ERISA. In fact, he suspects, the problems identified by the commission are just the tip of the iceberg.)

Lori Richards, director of the commission’s Office of Compliance Inspections and Examinations, said at a press conference that the SEC’s Enforcement Division will probe some of the firms, according to, though the SEC did not name names

“The message today to pension consultants, all 1,700 of them, is that we are watching,” Richards told reporters, according to the website. “And we expect you to take a hard look at your practices, and to take steps to inform your clients of any material conflicts of interest.”

The SEC’s “Staff Report Concerning Examinations of Select Pension Consultants” was based on a cross-section of 24 pension consultants registered with the SEC as investment advisers. The examinations, which reviewed the products and services provided by consultants, the method of payment for those services, and the disclosure provided to clients, found that:

• More than half pension consultants or their affiliates provided products and services to both pension-plan advisory clients and to money managers and mutual funds on an ongoing basis.

• Most of the consultants have relationships with broker-dealers that may allow money managers to compensate the consultants, perhaps to curry favor.

• Many pension consultants have affiliates that also provide services to pension plan clients.

• Many pension consultants do not adequately disclose material conflicts of interest arising from these practices to their clients.

“It’s 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 Richards, in a statement. “When a consultant holds itself out as providing unbiased, objective advice, that obligation must be met.”