Some 2,000 money managers are being asked to detail the sources and amounts of payments they make to investment consulting firms affiliated with broker/dealers used by pension funds, according to a survey being mailed by Benchmark Financial Service.
Consultants employed by major brokerage firms “are often conflicted gatekeepers,” earning compensation from money managers that are being evaluated by them for pension funds, according to a Benchmark statement accompanying the survey.
These consultants often do not disclose to their pension fund clients the sources and amounts of compensation they derive from money managers, payments that undermine their objectivity and could be financially harmful to pension fund clients, the statement said.
Through trading reports, pension funds can see soft-dollar payments managers make by directing trades through consultants associated with brokerage firms, but other payments can be less evident, Edward A.H. Siedle, Benchmark president, said in an interview. Consultants can receive payments from managers from, among other sources, asset-management fee sharing, conferences, research services, performance analysis and educational seminars.
“These payment arrangements are legal, if properly disclosed” to pension fund clients, Mr. Siedle said. “But I’m not convinced they are properly disclosed.”
Pension fund fiduciaries should have this information so they can evaluate conflicts of interest and decide whether they want to manage the conflicts or avoid them, he added.
Benchmark plans to report on the results of its survey in June, “if we get a sufficient response … and a granularity of detail,” Mr. Siedle said. Survey responses are anonymous.