Subject: Re: WSJ: Pension Consultants Who Recommend Selves as Money Managers Could Be Violating Law
From: "Chuck Harple" <[email-masked]>
To: "Daniel McHale" <[email-masked]>
Cc: "Eric Schwerin" <[email-masked]>, "Arlene Busch" <[email-masked]>, "Mike Mathis" <[email-masked]>, "Hunter Biden" <[email-masked]>, "Joan Peugh" <[email-masked]>
Date: Tue, 28 Oct 2014 14:15:14 -0400

Makita

Chuck Harple 
The Mathis Harple Group
923 15th Street, NW
Washington, DC 20005
202-662-9700 office
202-957-0042 cell
[email-masked]

Please pardon any typos. Sent by iPhone. 

> On Oct 28, 2014, at 1:59 PM, Daniel McHale <[email-masked]> wrote:
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> From a friend at the WSJ….
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> ---------- Forwarded message ----------
> From: Chung, Juliet <[email-masked]>
> Date: Tue, Oct 28, 2014 at 1:56 PM
> Subject: WSJ: Pension Consultants Who Recommend Selves as Money Managers Could Be Violating Law
> To: "Chung, Juliet" <[email-masked]>
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> 
> Hi, Juliet with the Journal here. Thought you might be interested in this story on the Labor Department saying that investment consultants to ERISA plans who recommend themselves for discretionary mandates could be violating federal pension law.
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> Pension Consultants Who Recommend Selves as Money Managers Could Be Violating Law
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> Labor Department’s Stance Adds to Attention on Investment Consultants
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> By Juliet Chung
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> Investment consultants that recommend themselves as money managers for pensions “could” be violating federal pension law, the Labor Department said, according to a document reviewed by the Wall Street Journal.
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> The letter provides a glimpse into the thinking of the regulator overseeing part of the federal pension law as the agency considers a new rule governing the conduct of advisers to retirement plans.
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> These consultants, who historically only advised pension funds on how to invest their money, have become increasingly influential in recent years and many now manage money as well.
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> The Labor Department’s opinion comes in its response to a senior Democratic Congressman’s urging the department in May to examine whether it was a conflict of interest for an adviser to recommend that it also serve as a pension’s money manager.
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> The Department’s opinion applied to consultants who made such recommendations while obligated to act in their clients’ best interests, known as fiduciary duty.
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> The Labor Department has enforcement authority for certain provisions of the Employee Retirement Income Security Act of 1974, or ERISA.
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> If “a pension consultant were acting as a fiduciary when recommending itself, it could be in violation of ERISA,” wrote Labor Assistant Secretary Phyllis Borzi to U.S. Rep. George Miller (D., Calif.) in a letter dated Sept. 24.
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> The Labor Department “has long been aware of the potential for conflicts” in this arena and regularly looks at whether a consultant’s relationship with its pension client could be considered a fiduciary one during examinations it conducts, the letter said.
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> Ms. Borzi also wrote, without elaborating on potential next steps, that the Labor Department was “committed to addressing the issues and conflicts of interest you describe.”
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> A Labor Department spokesman declined to comment beyond the letter.
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> The Labor Department uses a functional test to determine whether a person is a fudiciary to a pension or not, according to lawyers, rather than relying on an individual’s title.
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> “The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan,” the Department says on its website. Trustees and investment advisers typically are among those considered to be fiduciaries, the website says, while lawyers and accountants are not.
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> Public and corporate pensions hire investment consultants to provide impartial guidance to retirement plans. Some say they benefit pensions that may not have the experience or resources to make investment decisions or monitor investments already made.
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> Besides potential conflicts of interest, investment consultants have also come under criticism for not being transparent about their track records, making it difficult for clients to assess their value.
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> “The investment consultants who are hugely influential are finally getting a little bit of attention, which I think is exactly right,” said Tim Jenkinson, a professor of finance at the University of Oxford’s Said Business School.
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> Mr. Jenkinson and his co-authors made waves last year with a research paper that found investment consultants added no value for U.S. pension clients when it came to recommending U.S. stock funds between 1999 and 2011. He has since been outspoken in urging consultants to provide greater transparency regarding their recommendations.
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> Further clarity on whether investment consultants to ERISA pensions can recommend themselves as money managers for those clients may be some time away. The Labor Department is considering a “conflict of interest” rule that would broaden who is considered a fiduciary to employee benefit plans and individual retirement accounts.
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> It is not expected to issue its proposed rule until January.
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> “What everyone is waiting for are regulations that would specify the details of how you can wear these two hats of consultant and investment adviser without violating the law,” said Anne Rea, a partner at Sidley Austin LLP who heads the law firm’s ERISA litigations practice. Clients include corporate pensions and some consultants.
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> “It’s an issue that’s not likely to die down soon,” Ms. Rea said.
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> Rep. Miller, the ranking Democratic member of the House Committee on Education and the Workforce, said in a statement he was “encouraged” the Department of Labor was looking at the potential conflicts.
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> “While I am hopeful that the steps DOL is taking will sufficiently address this issue,” Rep. Miller said in the statement, “we must continue to vigilantly protect American workers from unscrupulous financial advisors so that families across the country can have the secure retirement that they deserve.”
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> —Dan Fitzpatrick contributed to this article.
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> Juliet Chung
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> Reporter
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> The Wall Street Journal
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> 1211 Avenue of the Americas
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> New York, NY 10036
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> o: 212.416.3751
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> m: 310.882.8399
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