What actions have pension consultants taken after the SEC’s release last year of its “Staff Report Concerning Examinations of Select Pension Consultants” as well as its “Tips for Plan Fiduciaries“? Lori Richards, Director, Office of Compliance Inspections and Examinations, for the SEC gave a speech December 5, 2005 (access it here) in which she provided some insight into how pension consultants have responded. Excerpt:
Since we issued our examination Report and the “Tips for Plan Fiduciaries” in May, we’ve sought to determine how pension consultants were reacting to the recommendations in the Report — we wanted to see what steps they had taken to address the conflicts of interest and the disclosure issues we had raised. We asked a number of the firms we had examined what steps they were taking in response to the Report.In general, we found that most pension consulting firms we examined have taken positive steps to reevaluate, revise, and implement changes to their policies and procedures. . . .
Here’s what many pension consultants said that they were doing in light of our three recommendations, which were:
- To insulate the consultant’s advisory activities from its other business activities to eliminate or mitigate conflicts of interest;
- To disclose all conflicts of interest to prospective and existing clients to fulfill fiduciary duties; and
- To implement policies and procedures to prevent conflicts of interest or disclose material conflicts of interest, especially concerning brokerage, gifts, donations, contributions and other financial benefits.
Richards then goes through a laundry-list of specific actions pension consultants have taken in implementing these three goals. While the speech is preceded by the disclaimer that the “speaker’s views are her own, and do not necessarily reflect those of the Commission, the Commissioners, or other members of the staff,” it does provide some insight into what actions the SEC might deem acceptable in addressing the concerns in the Staff Report. Plan fiduciaries will likely find this information somewhat useful in selecting, monitoring, and evaluating the pension consultants who assist them.
For instance on the obligation of disclosing conflicts, here are some of the “positive” actions being taken by pension consultants that she listed in her speech:
- All consultants use Part II of Form ADV or a separate brochure to disclose conflicts of interest, and most strengthened their disclosures.
- In addition to Form ADV, several consultants also provide clients with a separate conflict of interest document that includes discussions about the consultant’s business relationships with money managers and how the consultant manages potential conflicts.
- A consultant provides specific disclosure to individual clients about conflicts it has with particular money managers it recommends to its clients.
- A consultant adopted new procedures under which advisory clients can request specific financial information related to the consultant’s business relationships with individual managers.
- Some consultants advised that they have distributed their own responses to the SEC Staff Report and the DOL/SEC “Tips” to individual clients.
In regards to the implementation of policies and procedures to prevent conflicts of interest, Richards gave the following advice to plan fiduciaries:
On a less encouraging note, it did not appear to us that all pension consultants had implemented policies governing the payment of their fees with directed brokerage. And, more than a handful of consultants failed to offer to provide a copy of the firm’s Code of Ethics to clients in Part II of Form ADV, as required. Plan trustees may find that reviewing a pension consultant’s Code of Ethics may help in answering some of the questions outlined in the SEC/DOL “Tips for Plan Fiduciaries.”
Read previous posts about the SEC/DOL focus on pension consultants here.