Your June 27 editorial calling for forensic investigations of pension consultant conflicts of interest was right on the money.
Pension consultant conflicts of interest, often involving collusion between money managers and consultants, result in substantial, quantifiable harm. As the only firm that has successfully investigated these conflicts and recovered assets from consultants on behalf of pension funds, we know that tainted consultant advice can cost a fund 10% to 15% over time. While funds may choose to spend $250,000 or more for so-called forward-looking operational reviews, we believe that these reviews provide minimal value and fail to address the fundamental issue. That is, if conflicts cause harm (and we know they do), then an approach that neglects to fully investigate, quantify and recover damages fails to safeguard participant funds.
Fiduciary reviews that do not assign blame for past or ongoing malfeasance are an easy sell to pensions unprepared to seriously examine the actions of their vendors, however, they are not in the best interests of participants because the fund is never made whole. We have observed that these superficial reviews seldom result in subsequent civil or criminal proceedings. They are sold as being a painless alternative for sponsors, as opposed to a precursor to a forensic investigation. Participants are the losers when boards choose a cover-up, as opposed to a cleanup.
Furthermore, only through in-depth investigations of past and ongoing wrongdoing can one competently advise pensions regarding their operations going forward. Absent a thorough forensic investigation, procedures to prevent reoccurrence of problems cannot be established. Put simply, a fund cannot adopt procedures to prevent problems of which it is not fully aware. Our investigations of past and ongoing wrongdoing inevitably provide funds with the guidance they need to correct operations going forward; on the other hand, operational reviews at best provide superficial advice going forward with no resolution of past matters.
We believe it is appropriate to judge firms that seek to advise pensions by the results they deliver. All too often, superficial operational reviews leave serious wrongdoing untouched. When we examine funds that have undergone such reviews, we often see continuing malfeasance. The operational review has merely provided the board with a possible defense against lawsuits brought by participants or others. The board can claim to have looked into the matter and, on advice of expert counsel, taken (limited) action to address the matter. We are not in the business of providing such relief to those who turn away from wrongdoing under their noses. If you engage this firm to conduct a forensic audit, I promise you will get our best analysis of all potential vendor wrongdoing and nothing less.
Finally, we believe an approach that focuses upon industry best practices is fundamentally flawed. It only ensures compliance with industry standards of today and, as the mutual fund and similar scandals have shown, commonly accepted industry behavior often is corrupt. We focus upon conduct that is harmful to plans, regardless of whether it is commonplace in the industry or not. When we identify such harm, we seek to fashion a legal theory that will address it. We were the only firm talking about illegal mutual fund activity in the 1980s and 1990s and the first to draw attention to pension consultant conflicts of interest in the 1990s. Our efforts, including testifying before the U.S. Senate and the Louisiana House of Representatives, as well as advising the SEC and law enforcement, contributed substantially to bringing these abuses to the forefront. Currently we are advising unions representing participants in defined benefit pensions in requesting forensic audits of any plans taken over by the Pension Benefit Guaranty Corp. We are committed to continuing to ferret out wrongdoing and bring it to the attention of our clients, regulators, legislators, law enforcement and ultimately investors.
Edward A.H. Siedle
Benchmark Financial Services Inc.
Ocean Ridge, Fla.