EMAIL DETAILS

Uh, duh! Surprised this has never been focused on before. I wonder how
many funds fall into this category.

From: Daniel McHale <dmchale01@gmail.com>
Date: Tuesday, October 28, 2014 at 1:59 PM
To: Eric Schwerin <eschwerin@rosemontseneca.com>, Arlene Busch
<abusch@rosemontseneca.com>, Mike Mathis MG <mike@mmathisgroup.com>, Chuck
Harple MG <chuck@mmathisgroup.com>, Hunter Biden
<hbiden@rosemontseneca.com>, Joan Peugh <jpeugh@rosemontseneca.com>
Subject: Fwd: WSJ: Pension Consultants Who Recommend Selves as Money
Managers Could Be Violating Law

From a friend at the WSJŠ.

---------- Forwarded message ----------
From: Chung, Juliet <Juliet.Chung@wsj.com>
Date: Tue, Oct 28, 2014 at 1:56 PM
Subject: WSJ: Pension Consultants Who Recommend Selves as Money Managers
Could Be Violating Law
To: "Chung, Juliet" <Juliet.Chung@wsj.com>


Hi, Juliet with the Journal here. Thought you might be interested in this
story on the Labor Department saying that investment consultants to ERISA
plans who recommend themselves for discretionary mandates could be violating
federal pension law.

Pension Consultants Who Recommend Selves as Money Managers Could Be
Violating Law
Labor Department¹s Stance Adds to Attention on Investment Consultants

By Juliet Chung

Investment consultants that recommend themselves as money managers for
pensions ³could² be violating federal pension law, the Labor Department
said, according to a document reviewed by the Wall Street Journal.

The letter provides a glimpse into the thinking of the regulator overseeing
part of the federal pension law as the agency considers a new rule governing
the conduct of advisers to retirement plans.

These consultants, who historically only advised pension funds on how to
invest their money, have become increasingly influential in recent years and
many now manage money as well.

The Labor Department¹s opinion comes in its response to a senior Democratic
Congressman¹s urging the department in May to examine whether it was a
conflict of interest for an adviser to recommend that it also serve as a
pension¹s money manager.

The Department¹s opinion applied to consultants who made such
recommendations while obligated to act in their clients¹ best interests,
known as fiduciary duty.

The Labor Department has enforcement authority for certain provisions of the
Employee Retirement Income Security Act of 1974, or ERISA.

If ³a pension consultant were acting as a fiduciary when recommending
itself, it could be in violation of ERISA,² wrote Labor Assistant Secretary
Phyllis Borzi to U.S. Rep. George Miller (D., Calif.) in a letter dated
Sept. 24.

The Labor Department ³has long been aware of the potential for conflicts² in
this arena and regularly looks at whether a consultant¹s relationship with
its pension client could be considered a fiduciary one during examinations
it conducts, the letter said.

Ms. Borzi also wrote, without elaborating on potential next steps, that the
Labor Department was ³committed to addressing the issues and conflicts of
interest you describe.²

A Labor Department spokesman declined to comment beyond the letter.

The Labor Department uses a functional test to determine whether a person is
a fudiciary to a pension or not, according to lawyers, rather than relying
on an individual¹s title.

³The key to determining whether an individual or an entity is a fiduciary is
whether they are exercising discretion or control over the plan,² the
Department says on its website. Trustees and investment advisers typically
are among those considered to be fiduciaries, the website says, while
lawyers and accountants are not.

Public and corporate pensions hire investment consultants to provide
impartial guidance to retirement plans. Some say they benefit pensions that
may not have the experience or resources to make investment decisionsor
monitor investments already made.
Besides potential conflicts of interest, investment consultants have also
come under criticism for not being transparent about their track records,
making it difficult for clients to assess their value.

³The investment consultants who are hugely influential are finally getting a
little bit of attention, which I think is exactly right,² said Tim
Jenkinson, a professor of finance at the University of Oxford¹s Said
Business School.

Mr. Jenkinson and his co-authors made waves last year with a research paper
that found investment consultants added no value for U.S. pension clients
when it came to recommending U.S. stock funds between 1999 and 2011. He has
since been outspoken in urging consultants to provide greater transparency
regarding their recommendations.

Further clarity on whether investment consultants to ERISA pensions can
recommend themselves as money managers for those clients may be some time
away. The Labor Department is considering a ³conflict of interest² rule that
would broaden who is considered a fiduciary to employee benefit plans and
individual retirement accounts.

It is not expected to issue its proposed rule until January.

³What everyone is waiting for are regulations that would specify the details
of how you can wear these two hats of consultant and investment adviser
without violating the law,² said Anne Rea, a partner at Sidley Austin LLP
who heads the law firm¹s ERISA litigations practice. Clients include
corporate pensions and some consultants.

³It¹s an issue that¹s not likely to die down soon,² Ms. Rea said.

Rep. Miller, the ranking Democratic member of the House Committee on
Education and the Workforce, said in a statement he was ³encouraged² the
Department of Labor was looking at the potential conflicts.

³While I am hopeful that the steps DOL is taking will sufficiently address
this issue,² Rep. Miller said in the statement, ³we must continue to
vigilantly protect American workers from unscrupulous financial advisors so
that families across the country can have the secure retirement that they
deserve.²

‹Dan Fitzpatrick contributed to this article.


Juliet Chung
Reporter
The Wall Street Journal
1211 Avenue of the Americas
New York, NY 10036
o: 212.416.3751 <tel:212.416.3751>
m: 310.882.8399 <tel:310.882.8399>