Delray Beach (Fla.) Police & Fire Retirement System has an unusual employee-sharing arrangement with its consultant, Smith Barney Consulting Services.
Its pension administrator, Anne Woods, works part time for the $100 million pension fund and part time in a clerical position for Smith Barney in its Delray Beach office.
She's held the two positions, with the knowledge of system officials, almost since the inception of Smith Barney's consulting relationship with the Delray Beach fund in 1996, said Ms. Woods and Ernie Mahler, senior vice president. Mr. Mahler, who hired her at Smith Barney, is the fund's consultant.
Benchmark Financial Services Inc., which conducted a review of Smith Barney's consulting work for the fund, found that arrangement noteworthy. "She is subject to a conflict of interest as a result of her dual roles that could become problematic in the event of a dispute between the fund and SB," the report states.
Benchmark Financial, Ocean Ridge, Fla., evaluated Smith Barney's processes, policies, methods of compensation and conflicts of interest, said William Adams, chairman of the system's board.
The board undertook the review "in light of the concerns about fiduciary responsibility and maintaining the highest ethical standards," Mr. Adams said. "We thought it was prudent for the board, acting in their fiduciary capacity for participants, to look at the relationship."
Smith Barney provides performance monitoring, manager evaluations and manager recommendations for searches, Mr. Adams said.
The board may decide at its March 16 meeting what action, if any, to take, he said. Mr. Adams wouldn't comment on the report, saying he is still reviewing it.
Benchmark calls its work a limited review, "solely for purposes of determining whether there are indications of significant concerns. Additional analysis would be required to estimate any possible damages." Benchmark performed the review on a contingency-fee basis.
Ms. Woods, who said she hasn't read the report, said there is no conflict in her dual positions, which she noted have been approved by the Smith Barney compliance department and the system's counsel. Ms. Woods said she has worked for the system for 15 years, all out of her home; she works for Smith Barney at its office.
Mr. Mahler defends her working part-time for Smith Barney, saying, "There is not a conflict. She's not a decision-maker.
"I was looking for a part-timer. She was looking for part-time work," he said. "The fund approved it. Everything was disclosed."
Among other aspects of Smith Barney's consulting work for the system, the Benchmark Financial report raises questions about the compensation arrangements in hard dollars and soft dollars, or directed brokerage commissions, and performance reporting, whether it was consistently before or after fees.
The report also discusses Smith Barney's fiduciary status to the fund. When negotiating a renewal of its consulting contract in 2002, Smith Barney asked to remove the provision designating it as a fiduciary to the Delray Beach system.
"Our legal department wanted that language out," Mr. Mahler said. The board acquiesced. As Pensions & Investments has reported in recent years, a number of other consultants have sought to end their fiduciary status with their clients.
"We are not a fiduciary to it," Mr. Mahler said. "That was a contract negotiation. That was a heads-up board decision."
Mr. Mahler said Smith Barney "will do whatever the board asks" to cooperate on the report.
