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| > Investing > Fiduciary Focus |
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| Fiduciary Focus: The Pension Consultant Shell Game (Part 2) |
| by
W. Scott Simon
| 11-03-05 |
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The article I wrote last month concerning the shell game played by many 401(k) plan pension consultants touched a real nerve among some readers, both pro and con. That article generated the most email I have received since I began writing this column nearly two years ago. Most writers agreed fervently with what I said in the article. But, boy oh boy, there were those that did not agree. Here is one such writer:
"I think [your] article was long on cynicism and short on practicality with a holier than thou art attitude. [You] seemed to lump all pension consultants in the same boat in a rather irresponsible way. Maybe we should all just refer to WebMD and perform our own medical diagnosis and treatment plans. It would be a lot cheaper."
Is that the best you can do? Bring it on:
"I am sure that [you] can point to some RIAs that provide the types of services [you describe] to qualified plans in an inappropriate and conflicted manner. The problem with [your] article is that it implies that all business is done that way. The truth is that services similar to the ones described by [you] are provided to clients in an independent objective manner for a fair fee by many RIAs. You would never know that from [your] article. As a representative of all those who provide the kinds of services described by [you] in an objective and transparent way, I must tell you that I resent the implications of the article."
Okay, okay, I'm now starting to weaken from these thrashings. Mercifully, the following writer was a bit gentler in his criticism--although he still took me to the woodshed:
"While I generally liked your article on pension consultants, I thought you were a little too harsh on the industry. While there are certainly some poorly qualified consultants that overcharge clients for service, there are many who charge fairly and add significant value. The true value of a good consultant comes from industry expertise that cannot be replicated with a Morningstar.com subscription. To put the issue into perspective, we often find that we can help clients navigate the maze of revenue sharing and share classes such that net savings on fund costs are greater than our consulting fee, before considering any other value we may add--style drift, fund overlap, investment education, investment policy, etc."
Please let me set the record straight. I think that a careful and impartial reading of last month's article shows clearly that I never said that "all," nor even "most," pension plan consultants are corrupt--just "many" of them. In fact, I was gentler in my assessment than the staff report issued by the U.S. Securities and Exchange Commission. Indeed, that report found that "most" (not merely "many," as I stated) of the pension plan consultants studied--large, small, and middling--have rampant and corrupting conflicts of interest and that disclosure of same was usually non-existent.
Those of you (and you know who you are) who, whether registered investment advisors or otherwise, truly exhibit fiduciary conduct in your pension plan consulting work with no conflicts of interest are contributing to the greater good of our industry. I apologize heartily for any offense that I may have caused you as a result of last month's article. I certainly never meant to lump you in with the rest.
On the other hand, those of you (and you know who you are) who have conflicts of interest in your pension consulting work and fail to disclose them in a manner understandable to the very clients that you owe a fiduciary duty to are simply enablers in a cesspool of corruption. When you engage in such conduct, you are robbing real flesh-and-blood people of their retirement savings.
Those of you who are truly working for the greater good may want to consider creating a handout based on the Department of Labor/SEC fact sheet "Selecting and Monitoring Pension Consultants: Tips for Plan Fiduciaries" when marketing to plan sponsors. It will help differentiate yourselves from the many pension plan consultants who have helped contribute to the corruption of much of the pension consulting industry with their imprudent conduct.
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| W. Scott Simon is an expert on the Uniform Prudent Investor Act and the Restatement 3rd of Trusts (Prudent Investor Rule). He is the author of two books, one of which, The Prudent Investor Act: A Guide to Understanding is the definitive work on modern prudent fiduciary investing. Simon provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. He is a member of the State Bar of California, a Certified Financial Planner, and an Accredited Investment Fiduciary Analyst. Simon's certification as an AIFA qualifies him to conduct independent fiduciary reviews for those concerned about their responsibilities investing the assets of endowments and foundations, ERISA retirement plans, private family trusts, public employee retirement plans as well as high net worth individuals. For more information about Simon, please visitPrudent Investor Advisors, or you can e-mail him at wssimon@prudentllc.com The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. |
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