Risk Management

SEC Probing Reports of Pension Conflicts

Securities regulators are investigating the possibility that money managers orchestrated kickback schemes to secure pension-fund business.
Stephen TaubNovember 10, 2004

The Securities and Exchange Commission is turning up the heat on pension consultants to determine whether conflicts of interest exist between the consulting firms and the money managers they recommend to clients, the Wall Street Journal reported.

The SEC opened an enforcement investigation to determine whether the relationships had influenced the consultants’ choice of money managers and whether clients were aware of any financial ties between the two. Specifically, the regulators hope to determine if money-management firms directly or indirectly paid off consultants in exchange for allowing them to run pension funds for clients.

The retirement-fund consulting industry has been under SEC investigation for about a year, according to the Journal.

It isn’t illegal for consultants to receive money from asset managers in exchange for providing certain services, according to the report. But critics have complained that, in some cases, the fees are larger than what the consultants disclose to their clients and sometimes resemble kickbacks.

The SEC is also investigating whether the relationships were adequately controlled and managed. For example, the SEC is looking into reportedly lavish conferences sponsored by the major consulting firms for their pension-fund clients.

Officials from one consultancy — Mercer, a unit of Marsh & McLennan Cos. — recently said they would disband the firm’s Global Investment Forum, which provided research and ran conferences attended by asset managers, according to the paper.