In recent years the U.S. Department of Labor, the Securities and Exchange Commission, and the General Accountability Office have all advised companies sponsoring retirement plans that conflicts of interest related toÂ investment consultants to plans are widespread and that these conflicts have resulted in reduced returns, as well as higher fees for retirement investors.
Investment consultants advise retirement plan sponsors about allocation of assets (in the case of pensions) or investment options to be offered (with respect to defined contribution 401(k) and 457 plans) and recommend money managers to actually invest the assets of the plan, e.g. buy and sell, stocks and bonds. While every investment consultant Iâve ever met claims to provide objective, independent advice, theÂ industry is rife with conflicts. If the gatekeepers vetting and recommending money managers to plans are corrupt, then the planâs entire investment program may be tainted.
A very few savvy retirement plan sponsors have heededÂ regulatory and governmental warnings about this ethically-challenged industry. Most, unfortunately, have not.
Earlier this year, the Orange County Board of County Commissioners, Orange County, Florida, issued a Request for Proposals inviting interested parties to submit proposals for providing investment consulting services related to approximately $200 million in retirement assets. Â
The RFP indicated that the County intended to utilize an outside consulting firm to conduct due diligence reviews of all proposing firms. As stated in the RFP, âSuch due diligence reviews will include, but not be limited to, investigation of conflicts of interest, scrutiny of prior work product and contact with client references. Proposers consent to these due diligence reviews by responding to this RFP.â
My firm, Benchmark Financial Services, Inc. was retained by the County to conduct a due diligence review of the firms responding to the RFP.
This seemingly straight-forward project proved to be no lay-up. Increasingly I have come to accept that if an assignmentÂ seems easy, Iâm probably not doing my job. Â
The Minimum Firm Requirements included in the RFP included, âThe firm must not be affiliated in any manner whatsoever, either directly or indirectly, with any organization that provides brokerage, insurance, investment management or any other service that, in the opinion of the County, constitutes a conflict of interest. The firm may not derive compensation from any brokerage, insurance, investment management or other provider that, in the opinion of the County, constitutes a conflict of interest. The County retains sole discretion to determine whether actual or potential conflicts of interest exist related to a proposer.â
Our methodology in undertaking the due diligence review was to initially determine whether the firms responding satisfied the conflict of interest prohibitions in the RFP. With respect to firms that clearly did not satisfy this requirement, little or no further review was undertaken. Why rub salt into the wound? With respect to firms that did satisfy the conflict of interest prohibition, or initially appeared to, client references were contacted, copies of their most recent Securities and Exchange Commission filings, along with the results related to their most recent SEC examinations, were reviewed.
The following seven investment consulting firms responded to the RFP: The Bogdahn Group; Bolton Partners; Dahab Associates, Inc.; FiduciaryFirst, LLC; Meketa Investment Group; PFM Asset Management LLC; and Segal Rogerscasey. InÂ our final opinion, only one firm satisfied the conflict of interest concerns.
While Graystone Consulting, mentioned below, did not respond to the RFP, a limited review was undertaken of the firm in response to an inquiry received by the County from the firm.
A.Â Â Â Â BOLTON PARTNERS INVESTMENT CONSULTING GROUP, INC.
In its March 13, 2013 cover letter, Bolton indicated that âthe firm is independent and does not have any relationships with investment managers, brokers, plan administrators or custodians.â The firm indicated that it was âpaid on a flat fee basis and does not accept soft dollars as payment for its services.â
In its RFP response, Bolton stated, âWe do not derive compensation from any brokerage, insurance or investment management providers.âÂ
Source Article from http://www.forbes.com/sites/edwardsiedle/2013/06/18/conflict-free-retirement-plan-advisers-remain-hard-to-find/
Conflict-Free Retirement Plan Advisers Remain Hard To Find
Benchmark Financial Services