Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • Consultants
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • 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
    • WPS Innovation Awards
    • Influential Women in Institutional Investing 2023
    • 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
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
Breadcrumb
  1. Home
  2. MONEY MANAGEMENT
November 24, 2014 12:00 AM

The risks of multiline firms

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Roger Schillerstrom

    The Department of Labor made the right decision in granting Credit Suisse AG and its related entities a temporary exemption to continue to provide asset management services, at least for the short term, after its banking unit pleaded guilty to assisting U.S. citizens avoid taxes.

    To deny that exemption would punish Credit Suisse's asset management clients for the company's illegal activity in which they had no involvement.

    Such a denial would have forced clients to terminate the firm quickly and switch to other asset management providers.

    Changing investment managers isn't easy and cannot be done in haste. Seeking and hiring new managers and transferring the assets is disruptive at any time, and especially when a client is suddenly compelled to do so because of a change in regulatory or other legal circumstances.

    The clients, to satisfy their fiduciary duty, would be compelled to undertake searches for a replacement, a process that takes time and staff resources, and possibly incurs fees to investment consultants assisting in the change. In addition, a change in asset managers could lead to paying for transition management services to ensure the least market impact in moving portfolios to new firms.

    The illegal activities of Credit Suisse officials in the banking unit put the company's asset management services in jeopardy. The Department of Labor plans to hold a public hearing Jan. 15 on whether to grant a permanent exemption under the Employee Retirement Income Security Act on Credit Suisse's authorization to continue as a qualified professional asset manager and whether to impose conditions for it to do so.

    But Credit Suisse isn't the only company that has put its business with U.S. asset owners and other institutional investors in jeopardy.

    BNP Paribas Securities Services' plans to expand in the United States face an obstacle over a guilty plea last June by its French banking parent to charges it processed $30 billion in transactions with countries that are under U.S. government sanction.

    BNP Paribas “had set its sights on the U.S. pension fund, endowment and foundation market, playing off its longtime experience in 35 countries in Europe, Asia-Pacific and Latin America, and its current $170 billion in U.S. assets under custody for money managers and hedge funds,” as reported in a July 17 Pensions & Investments story.

    Companies like Credit Suisse and BNP Paribas will face trouble maintaining and building their business because of fiduciary concerns about reputational risk and compliance risk. While many of the large financial services companies, such as J. P. Morgan Chase, have suffered reputational damage following the financial crisis, their asset management units have long histories of reliability to help them overcome the damage. Newer firms do not have that residual good will.

    But by granting exemptions, the Labor Department risks undermining confidence in enforcement and accountability of money managers and other service providers as fiduciaries expected to commit to high standards of integrity.

    Asset owners and other institutional investors will correctly be concerned that similar disruptions might occur in the future, and it will take time for these firms to re-establish credibility.

    The asset owners seeking money management and other fiduciary services often have to deal with multiline financial services firms, at which another arm might run afoul of federal laws. The asset management unit might not be involved in wrongdoing or other non-compliance issues, but it could suffer as a result.

    When using such firms, clients shouldn't just wait for regulatory enforcement, such as the Labor Department action.

    Clients and prospective clients have to broaden their due diligence. They must take it beyond just asset management. They have to look for warning signs anywhere at the company. Actions at unrelated units could affect asset management, as the Labor Department case shows.

    Clients should make contingency plans by inserting into their asset management contracts, actions to be taken when illegal or other non-compliance activities are alleged at money managers and other service providers. Clients should specify in the contracts that whenever a company is in violation of the law that would result in costs to clients, the financial services company should pay the costs of transition to a new asset manager, if such a move is considered necessary by the client.

    The risks of having to pay such costs might serve as deterrence and provide the money manager with incentives to improve its internal compliance to avoid triggering such clauses. At least, asset owners and their beneficiaries would not suffer the financial consequences of forced transitions in the event that the asset managers are prohibited from providing such services in the future.

    Clients should begin to prepare for a transition when allegations first arise against such multiline financial services companies. They must quickly begin planning the steps of a transition, e.g., by gathering a list of likely replacement firms and beginning due diligence, in case a change becomes necessary.

    Related Articles
    Legal troubles could jeopardize BNP Paribas' U.S. growth plans
    Credit Suisse gets temporary asset manager exemption from DOL
    Credit Suisse Securities settles with SEC over insufficient trading information
    Recommended for You
    Photo of Stewart Investors' Elizabeth Trinh
    Stewart Investors selects APAC head of institutional distribution
    Another Goldman Sachs Asset Management partner to leave by end of year
    Photo of Franklin Templeton's Matt Harrison and Martin Currie's Jen Mair
    Franklin Templeton names vice chair, EMEA
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    Sponsored
    White Papers
    Exploring the Commercial Application of Artificial Intelligence
    Conflict Minerals: The human cost of our electronics
    Research for Institutional Money Management
    Private real estate entry points emerging amid selloff
    2023 Hot Topics in Retirement and Financial Wellbeing
    Bonds: Shaken, but Not Stirred
    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
    December 12, 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 Custom Content
    • 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 © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • Consultants
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • 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
      • WPS Innovation Awards
      • Influential Women in Institutional Investing 2023
      • 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
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars