Fresh off a recent sweep exam, the Securities and Exchange Commission is warning pension consultants about potential conflicts of interest.
The SEC's Office of Compliance Inspections and Examinations indicated in its "Staff Report Concerning Examinations of Select Pension Consultants," released in Washington on Monday after a 12-month investigation at 24 pension consultants registered with the SEC as investment advisers, that more than half of the 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.
In addition, SEC officials said, the report revealed that a majority of the pension consultants have affiliated broker-dealers or relationships with unaffiliated broker-dealers, which may provide a mechanism for money managers to compensate pension consultants, perhaps as a way to curry favor with them.
Many pension consultants have affiliates that also provide services to pension plan clients, officials said, and many pension consultants do not adequately disclose material conflicts of interest arising from these practices to their clients.
As a result of these situations, the SEC concluded, some pension consultants appear to erroneously think that they are not fiduciaries 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 Lori Richards, director, Office of Compliance Inspections and Examinations, SEC.
The report, officials said, was designed to alert the pension consultant community to the SEC's findings and to urge them to closely examine their disclosure efforts and make improvements where necessary. The SEC did not identify which pension consultants were included in the sweep exam.