Two consulting organizations are scrutinizing the fees plan sponsor pay to their managers.
Benchmark Financial Services Inc. is soliciting 100 major pension plan sponsors to establish a database of the fees they actually pay to money managers. Edward A.H. Siedle, president of the Lighthouse Point, Fla., firm, said the database would aid plan sponsors in negotiating fees with money managers.
Separately, Independent Consultants Cooperative, a group of 16 consulting firms and Deutsche Bank and its WM Co. unit, is initiating a study of the actual fees sponsors pay managers, according to Howard H. Pohl, principal at Becker, Burke Associates Inc., Chicago, one of the members of the ICC.
"Our research to date had shown that, due to the lack of disclosure regarding actual fees, some funds are paying two to four times what other pension funds are paying for the same investment advisory services," Mr. Siedle said in a memorandum asking for assistance.
"Any relationship between those published fees and what you actually pay a manager is total coincidence," Mr. Pohl said.
James M. Hacking, executive director of the State Universities Retirement System of Illinois, Champaign, said he would welcome a database of actual fees, so long as there are apples-to-apples comparisons of investment strategy and portfolio size.
Mr. Hacking said SURS' consultant, Ennis Knupp & Associates Inc., Chicago, reviews the manager fees the $8.8 billion fund pays, using only their own clients as the source of comparison data.
The Benchmark Financial and ICC projects are more ambitious.
Mr. Siedle said the Benchmark Financial database could be ready in April. He hasn't yet set a subscription price. The database, which the firm plans to update at least annually, will focus on U.S. and international equity and fixed-income portfolio management.
"That's where we can easily make an apples-to-apples comparison," he said, echoing one of Mr. Hacking's concerns.
The database will make comparisons among portfolios of similar size and investment strategies, allowing sponsors to determine how their fees compare. The database will also list money managers by name, along with the fees they charge.
"I've seen huge price differentials that aren't justifiable. I believe fees are too high," Mr. Siedle said
He said the database will allow sponsors to confirm whether they are actually receiving the lowest fees under so-called "most favored client" provisions in money management agreements. Under the provisions, money managers promise to charge a sponsor no more than it charges its lowest-fee-paying client.
So far, Benchmark Financial has enlisted 10 major public plan sponsors to provide data on fees
Mr. Pohl said ICC is using the data from its consulting firm members, representing $720 billion in assets, 1,000 money managers and 13,000 portfolios.
The database will make comparisons that match portfolios by size and investment strategies. Mr. Pohl hopes the study will be finished in a few months. Unlike Benchmark Financial's project, the ICC doesn't plan to develop an updated database.
Benchmark Financial was inspired to develop its database after the firm was hired by the Metropolitan Government of Nashville & Davidson County Benefit Board in Tennessee to do an audit of fees the $1.3 billion pension fund pays to its money managers, Mr. Siedle said.
Karl F. Dean, director of law for the Metro government, said the board wanted to ensure it is paying fees as contracted and not being overcharged. He expects the audit will be completed by the end of March.