SEC, DOL Encourage Plan Fiduciaries to Question Pension Consultants
Following last monthís OCIE report on pension consultant conflicts of interest, the SEC and the Department of Labor have jointly issued guidance for plan fiduciaries on evaluating the objectivity of their pension consultants.
Although pension consultants, like all advisers, have an affirmative duty to disclose conflicts to clients, the guidance nonetheless suggests that plan fiduciaries ask specific questions to ferret out hidden business alliances between pension consultants and money managers.
For example, the guidance suggests that plan fiduciaries ask pension consultants whether the consultant (or the consultantís affiliate) has any relationship with or receives any payment from money managers it recommends or considers recommending. If so, plan fiduciaries should find out what, exactly, that relationship consists of, and/or the relative size of the payment compared to the consultantís other sources of revenue.
The guidance encourages plan fiduciaries to probe the use of the planís commissions to compensate the pension consultant. The regulators suggested that plan fiduciaries ask their pension consultants how they monitor the amount of commissions paid over time and alert the plan when consulting fees have been paid in full. In addition, consultants should be asked what steps they take to "ensure" that the planís trades receive best execution, they said.