Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. Print
August 09, 2004 01:00 AM

Consultants: time for disclosures

By Gary Findlay

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The consulting community's reactions to the long overdue Securities and Exchange Commission look at consulting firm practices has been fascinating, as has been the volume of press this issue has generated. Equally fascinating have been the "letters to editors" of industry publications, together with letters to clients from high-profile representatives of the consulting community, most of which appear to be directed at rationalizing present practices. If there is a common thread in the messages from many of the consultants, it's this: "It's high time for this ox to be gored — just be sure it's someone else's ox."

    A case in point is the letter to the editor titled "Consultants ask managers to take a stand" in the April 19 issue of Pensions & Investments, encouraging money managers to clean up their act in regard to consultant client conferences (which coincidentally don't happen to be sponsored by that collection of consultants). Conspicuously absent from that letter was reference to disclosures of other consulting firm practices that can also produce conflicts of interest.

    Historically, suggestions that additional disclosure by consultants is needed have been met with statements downplaying the existence of conflicts such as, "It's such a small portion of our revenues that it doesn't have any impact, and we have Chinese walls, and you just don't understand the economics of this business and … and, why are you asking so many questions anyway?" Now that the SEC, a regulatory body with responsibility for investor protection, is asking very direct questions that should require very direct responses to this very specific issue (read "no wiggle room"), we get the ultimate in condescending statements that go something like this: "Anyone who thinks this very large source of revenue to my firm that I first denied and then downplayed and only now am begrudgingly forced to acknowledge has in any way compromised me in my ability to be objective is just being paranoid. This is clearly the work of small-minded people."

    It seems to me that it's time for the consulting community to simply recognize that the genie is finally out of the bottle and just get on with disclosures that will allow plan sponsors to fully evaluate the situation and make informed decisions. How about something like this: "My consulting firm does not accept payments, directly or indirectly, from service providers that our plan sponsor clients, whom we serve as full fiduciaries, do or will potentially contract with." Or, "We receive income from service providers that our plan sponsor clients, whom we serve as full fiduciaries, do or will potentially contract with, and such income totaled $x during the last year. The following is a detailed listing of the service providers that paid us directly or indirectly, the amount they paid, and the services they received for such payments. As a senior officer of my firm, I attest that this listing is complete and represents full disclosure of all revenues that my firm, or any of its affiliates, received from each firm listed." If this information were readily available, I'd be perfectly happy to let the marketplace sort it out.

    The disclosures suggested should not just be provided on some obscure form filed with the SEC. While I think it should be filed with the SEC, under penalty of perjury for filing false information, it more importantly should be provided annually to all of a consulting firm's existing clients and be included in proposals to all prospective clients.

    As long as it is at it, the SEC should probably resurrect its study of soft dollars (one of the great obfuscation tools of all time). A classic example is the outcry from the research community, suggesting that its ability to sell its products is dependent on the continued availability of soft dollars. It seems that it thinks money managers are going to be unwilling to purchase research if they cannot surreptitiously shift the cost to their clients. Doesn't this seem to underscore the view that research is being sold at prices that are unjustifiably high? This is a problem that will not go away until commissions are unbundled and the Section 28(e) safe-harbor is repealed.

    In the context of this overall issue, a dollar of revenue to a money manager or an investment consultant or a research firm started out as a plan asset. It does not matter if it was a hard dollar or a soft dollar, or how many filters it runs through, or how many times it changes hands before ultimately reaching a manager or consultant or researcher, it was a plan asset to begin with. As a plan asset, the governing and managing fiduciaries at a plan are obligated to be able to account for its disposition. Unfortunately, there are a number of smokescreens that have become institutionalized and that seem targeted at keeping this information from ever seeing the light of day. The SEC is well positioned to mandate practices that will clear the air. It's time for transparency to prevail — in its capacity as the investors' advocate, I hope the SEC has the resolve to bring this matter to a close in a way that truly protects the interests of investors.

    Gary W. Findlay is executive director of the Missouri State Employees' Retirement System, Jefferson City.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Alternatives: Investing Across the Spectrum
    Sponsored Content: Alternatives: Investing Across the Spectrum

    Reader Poll

    May 9, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Are Factors a Thing of the Past?
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    Out of the Shadows: The Revolution in Shadow Accounting
    The pivotal role of fixed income markets in the ESG revolution
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    May 9, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference