SEC, Spitzer Look for Conflicts in Investment, Retirement Planning Relationships

In a new conflict of interest case, the Securities and Exchange Commission (SEC) is finding signs that mutual-fund companies and other investment advisors paid retirement-plan consultants for referrals, the Wall Street Journal reported, quoting sources close to the SEC's year-long investigation.

Last December, the SEC began an investigation of possible conflicts within the financial services industry, looking for “quid pro quo” arrangements between consulting firms and financial managers, especially when the two branches fall under the same umbrella company.

Last week, New York Attorney General Eliot Spitzer sued Marsh & McLennan Cos., claiming the world's largest insurance brokerage firm rigged bids in arranging insurance for its clients, the Journal reported.

The SEC scrutiny of the employee-benefits field is especially significant for Marsh because its Mercer Investment Consulting Inc. unit is a major player in retirement-fund consulting and has confirmed that it is one of several consultants that received an SEC request for data late last year, the Journal reported.

Mercer said in a statement that it doesn't "request, require or accept payment from investment managers in order for them to be included or recommended in a manager or mutual-fund search." The company added that it is cooperating with the SEC inquiry, the Journal reported.

Marsh's three main operating units of Putnam, Mercer and Marsh Inc. have long encouraged employees to send potential customers to each other, formalizing the practice in 2000 by beginning “a series of cross-company activities to make sure our clients were aware of all our capabilities. The resulting increase in revenue led us to formalize the approach last year,” the Journal reported, quoting a letter to shareholders in the company's 2000 annual report. The letter said the practice was known as “Business in Combination,” or BIC.

Spitzer's suit is expected to look at whether a possible conflict of interest hurt investors.


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