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Alternative Market Briefing

New report on pension consultants shows increases in conflicts of interests

Tuesday, January 15, 2013

Bailey McCann, Opalesque New York: Due Diligence Review Corp. has released its annual review of pension investment consultants, showing that many of them are taking on dual roles and charting new territory in order to serve and find clients. Most pensions use multiple paid consultants which perform various roles from developing policy to advising on allocations. According to the report, most pension investment consultants raise few red flags in a due diligence review, however, those that do, tend to provide services to some of the biggest funds.

The report found five pension consulting firms that also act as broker dealers. A broker-dealer is a person, company or other organization that trades securities for its own account or on behalf of its customers. Broker-dealers are typically paid on commission and as a result, are not impartial to the products that end up in their client portfolio. The authors of the report note that when broker-dealers are also pension investment consultants, the same impartiality can bleed into their consulting activities.

"It’s difficult to understand how a consultant acting as a broker-dealer can provide objective, independent advice to pension fund clients. Indeed, decades of experience tell us it’s a rare broker-dealer that does so," authors write. They note that broker-dealers typically have a preference for a greater number of transactions in order to gain ever greater commissions - a practice that may not be well suited to long t......................

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