Merrill Lynch’s pension consulting unit in Florida has been subpoenaed by the Securities and Exchange Commission as part of a wider probe of possible conflicts of interest among pension advisors, The New York Times reported.
“It is common knowledge that the SEC has been conducting an industrywide examination of possible conflicts of interest in the pension consulting business,” said Merrill Lynch spokesman Mark Herr in a statement, according to the paper. “As Merrill Lynch always does in regulatory matters, it has cooperated with the SEC as this has unfolded. The firm has no reason to believe its circumstances or those of any of its employees are unique.”
The Merrill unit advises nearly 100 funds in Florida, according to the newspaper.
In May the commission issued a report that raised questions about the independence of pension consultants’ advice. Many pension consulting firms provide services both to pension plans, which are their advisory clients, and to money managers. “This duality in many pension consultants’ customer base may create a conflict of interest, which has the potential to cloud the objectivity of a pension consultant’s recommendations to advisory clients,” added the SEC report.
The report also noted concerns that pension consultants may steer clients to hire certain money managers and other vendors based on the consultant’s other business relationships and fee arrangements, rather than because the money manager is best-suited to the clients’ needs. “Such a conflict of interest can compromise the fiduciary duty that investment advisers owe their clients,” it added. Questions have also been raised regarding the extent to which pension consultants disclose these conflicts of interest to their clients.
The SEC examined 24 pension consultants who are registered investment advisers. More than half provided products and services both to pension plan advisory clients and to money managers and mutual funds on an ongoing basis. For some consultants, the compensation received from money managers “comprised a significant part of their annual revenues,” according to the regulator.
The commission also said that 14 of the pension consultants have affiliated broker-dealers or relationships with unaffiliated broker-dealers. It also asserted that “many pension consultants have affiliates that also provide services to pension plan clients.” These relationships create disclosure and conflict of interest issues that have not been addressed by pension consultants, the SEC added.