**Skip to page content
United States Department of Labor
Subscribe to E-mail UpdatesAll DOL EBSA   Advanced SearchA to Z | 				Site Map | 				FAQs | 				Forms | 				About DOL |  				Contact Us |                 Espa�olEmployee Benefits Security Administration**DOL** > **EBSA** > **Newsroom** > **Fact Sheet**
Fact Sheet

Selecting And Monitoring Pension Consultants - Tips For Plan Fiduciaries

Background

The Employee Retirement Income Security Act (ERISA) requires that      fiduciaries of employee benefit plans administer and manage their plans      prudently and in the interest of the plan’s participants and      beneficiaries. In carrying out these responsibilities, plan fiduciaries      often rely heavily on pension consultants and other professionals for      help. Findings included in a report by the staff of the U.S. Securities      and Exchange Commission released in May 2005, however, raise serious      questions concerning whether some pension consultants are fully disclosing      potential conflicts of interest that may affect the objectivity of the      advice they are providing to their pension plan clients.

Under the Investment Advisers Act of 1940 (Advisers Act), an investment      adviser providing consulting services has a fiduciary duty to provide      disinterested advice and disclose any material conflicts of interest to      their clients. In this context, SEC staff examined the practices of      advisers that provide pension consulting services to plan sponsors and      trustees. These consulting services included assisting in determining the      plans investment objectives and restrictions, allocating plan assets,      selecting money managers, choosing mutual fund options, tracking      investment performance, and selecting other service providers. Many of the      consultants also offered, directly or through an affiliate or subsidiary,      products and services to money managers. Additionally, many of the      consultants also offered, directly or through an affiliate or subsidiary,      brokerage and money management services, often marketed to plans as a      package of bundled services. The SEC examination staff concluded in its      report that the business alliances among pension consultants and money      managers can give rise to serious potential conflicts of interest under      the Advisers Act that need to be monitored and disclosed to plan      fiduciaries.

To encourage the disclosure and review of more and better information      about potential conflicts of interest, the Department of Labor and the SEC      have developed the following set of questions to assist plan fiduciaries      in evaluating the objectivity of the recommendations provided, or to be      provided, by a pension consultant.

Are you registered with the SEC or a state securities regulator as an      investment adviser? If so, have you provided me with all the disclosures      required under those laws (including Part II of Form ADV)?You can check yourself - and view the firm’s Form ADV - by searching      the SEC’s Investment Adviser Public Disclosure Web site. At present, the      IAPD database contains Forms ADV only for investment adviser firms that      register electronically using the Investment Adviser Registration      Depository. In the future, the database will expand to encompass all      registered investment advisers - individuals as well as firms - in every      state. If you can’t locate an investment adviser in IAPD, be sure to      contact your state securities regulator or the SEC’s Public Reference      Branch.      

Do you or a related company have relationships with money managers      that you recommend, consider for recommendation, or otherwise mention to      the plan? If so, describe those relationships.      When pension consultants have alliances or financial or other      relationships with money managers or other service providers, the      potential for material conflicts of interest increases depending on the      extent of the relationships. Knowing what relationships, if any, your      pension consultant has with money managers may help you assess the      objectivity of the advice the consultant provides.      

Do you or a related company receive any payments from money managers      you recommend, consider for recommendation, or otherwise mention to the      plan for our consideration? If so, what is the extent of these payments in      relation to your other income (revenue)?Payments from money managers to pension consultants could create      material conflicts of interests. You may wish to assess the extent of      potential conflicts.      

Do you have any policies or procedures to address conflicts of      interest or to prevent these payments or relationships from being a factor      when you provide advice to your clients?      Probing how the consultant addresses these potential conflicts may help      you determine whether the consultant is right for your plan.      

If you allow plans to pay your consulting fees using the plan’s      brokerage commissions, do you monitor the amount of commissions paid and      alert plans when consulting fees have been paid in full? If not, how can a      plan make sure it does not over-pay its consulting fees?      You may wish to avoid any payment arrangements that could cause the      plan to pay more than it should in pension consultant fees.      

If you allow plans to pay your consulting fees using the plan’s      brokerage commissions, what steps do you take to ensure that the plan      receives best execution for its securities trades?      Where and how brokerage orders are executed can impact the overall      costs of the transaction, including the price the plan pays for the      securities it purchases.      

Do you have any arrangements with broker-dealers under which you or      a related company will benefit if money managers place trades for their      clients with such broker-dealers?      As noted above, you may wish to explore the consultants’      relationships with other service providers to weigh the extent of any      potential conflicts of interest.      

If you are hired, will you acknowledge in writing that you have a      fiduciary obligation as an investment adviser to the plan while providing      the consulting services we are seeking?      All investment advisers (whether registered with the SEC or not) owe      their advisory clients a fiduciary duty. Among other things, this means      that advisers must disclose to their clients information about material      conflicts of interest.      

Do you consider yourself a fiduciary under ERISA with respect to the      recommendations you provide the plan?      If the consultant is a fiduciary under ERISA and receives fees from      third parties as a result of their recommendations, a prohibited      transaction under ERISA occurs unless the fees are used for the benefit of      the plan (e.g., offset against the consulting fees charged the plan) or      there is a relevant exemption.      

What percentage of your plan clients utilize money managers,      investment funds, brokerage services or other service providers from whom      you receive fees?      The answer may help in evaluating the objectivity of the      recommendations or the fiduciary status of the consultant under ERISA.      

For more information on the SEC staff’s findings, please read “Staff      Report Concerning Examinations Of Select Pension Consultants”. Plan      trustees, pension consultants, and other service providers can learn about      their fiduciary responsibilities under the Employee Retirement Income      Security Act (ERISA) by visiting the Web site of the U.S. Department of      Labor. Pension consultants who have questions concerning their obligations      under the Investment Advisers Act of 1940 should either consult with an      attorney who specializes in the federal securities laws or contact the      staff of the SEC’s Division of Investment Management.

    This fact sheet has been developed by the U.S. Department of Labor, Employee    Benefits Security Administration, Washington, DC 20210. It will be made    available in alternate formats upon request: Voice phone: 202.693.8664;    TTY: 202.501.3911. In addition, the information in    this fact sheet constitutes a small entity compliance guide for purposes of    the Small Business Regulatory Enforcement Fairness Act of 1996.
Freedom of Information Act | 				Privacy & Security Statement | 				Disclaimers | 				Customer Survey | 				Important Web Site Notices |                 Plug-ins Used by DOL				U.S. Department of Labor | Frances Perkins Building, 200 Constitution Ave., NW, Washington, DC 20210www.dol.gov | Telephone: 1-866-444-EBSA (1-866-444-3272) | TTY: 1-877-889-5627 | Contact Us**