Pension Consultants May Be Serving Two Masters

The study also notes that a majority of the pension consultants have affiliated broker-dealers or relationships with unaffiliated broker-dealers that may provide a mechanism for money managers to compensate pension consultants, perhaps as a way to curry favor with the pension consultant.

"Although investment advisors owe their clients a fiduciary obligation–including adequately disclosing all material conflicts of interest–some pension consultants appear to have concluded erroneously that they are not fiduciaries to their clients," says Richards.

The report notes the questions that have been raised regarding the independence of advice that pension consultants provide due to their service to two masters. "This duality in many pension consultants' customer base may create a conflict of interest, which has the potential to cloud the objectivity of a pension consultant's recommendation to advisory clients," the report says. "Concerns exist that pension consultants may steer clients to hire certain money managers and other vendors based on the pension consultant's [or an affiliate's] other business relationships and receipt of fees from these firms, rather than because the money manager is best suited to the clients' needs."

A spokesperson for the American Society of Pension Actuaries could not be reached for comment.

'Many consultants must do more to identify conflicts of interest'