The Benchmark Alert is written primarily for institutional investors. The Alert is kept brief and expresses opinions about issues involving pensions and money mangers deserving of special consideration.
The Alert generally focuses on issues that are not explored by the financial press or presents a novel viewpoint on a seemingly settled issue. We believe the Alert is both original as to subject matter and analysis. The Benchmark Alert presumes that the reader is knowledgeable about the investment management industry; we intentionally avoid any significant reference to data to support the opinions expressed in the Alert.
Two articles...of securities lending
The July 2008 alert includes two articles that deal with the esoteric subject of securities lending by retirement plans. For those of you that are unfamiliar with securities lending, generally borrowers, such as hedge funds, use the borrowed shares for short selling purposes. While securities lending is commonplace it is more controversial today than ever due to concerns regarding the impact of short sellers upon the financial markets. The first article concludes that pensions and funds would be challenged (due to a lack of transparency) to fully understand the details of the lending agreements they have entered into or the fees borrowers are paying intermediaries (such as prime brokers) to borrow plan securities. The second article, by the CEO of OneChicago LLC, discusses use of single stock futures to accomplish the same economic result as securities lending, without many of the risks. Let us know your thoughts.
Jul 23, 2008
"Capping" 401k Revenue Sharing: Record-keepers...
"Capping" 401k Revenue Sharing: Record-keepers Block Rebates To Participants.
This month's article explains how in 2004 some of the nation's largest 401k plan record-keepers waived their contractual rights to receive revenue sharing payments from mutual funds offered on 401k platforms and refused to rebate these amounts to plan participants. The intended result was swiftly achieved: the erosion in mutual fund fees related to the Spitzer investigations came to an abrupt end in the retirement plan context. If you want to understand why 401k plan expenses are so high today, this article is a must-read. As always, we welcome your comments..
May 19, 2008
Corporate Sponsors Agree: 401(k) Results Don't...
Can it be true that 401(k) plan investment results don't matter, as long as plan "process" is good? Is that all ERISA, the federal statute governing these defined contribution plans requires-- good housekeeping? That's the opinion ERISA lawyers voiced at a recent sponsor-only 401k conference session we were invited to speak at. We think 401k plan sponsors can do better than that and this month we provide advice to get them started. As always, we welcome your comments.
Apr 8, 2008
Another Perspective on the Shifting 401(k)
Last month's "Alert" featured an interview with Fred Barstein, CEO of 401kExchange, Inc. In the interview Fred offered his insights on a number of emerging 401(k) issues. Fred is a respected voice in the retirement community; however, there were a number of issues he addressed that could be approached from a slightly different perspective. This month's counterpoint by David Witz of Fiduciary Risk Assessment LLC provides a thought provoking alternative viewpoint.
Mar 20, 2008
Challenges to 401ks Continue
This month's alert is a conversation with Fred Barstein, CEO of 401kExchange, Inc. about the growing number of class action lawsuits against 401k plan sponsors and investment firms that provide services to these plans. Barstein says, "80% of smaller plans have an adviser who lacks the experience necessary to help the sponsor manage the growing plan." Also he notes: "the record-keepers that service smaller 401k plans are sweating-- especially if the courts ultimately determine they are fiduciaries." Let us know your thoughts.
Feb 15, 2008
PBGC pension termination, a worker's perspective
What is the effect upon participants in a pension plan when the Pension Benefit Guaranty Corporation takes over the plan and replaces company pensions with PBGC pensions? This month's article provides a worker's perspective of a process most pension managers poorly understand. Terry O'Rourke, is a 22- year United Airlines employee and editor of WayPoints, a newsletter of the Aircraft Mechanics Fraternal Association, San Francisco, Local 9, whom we met in Washington during our discussions with the PBGC regarding the UAL pension plan. We look forward to the day when PBGC practices are more fully understood by the American public and subjected to the scrutiny they deserve.
Dec 15, 2007
The Long Overdue Florida Public Pension Clean-Up
This month's alert discusses the history of broker- consultant wrongdoing involving Florida public pension plans and examines why it was allowed to continue for the past six years despite repeated warnings. As we conclude, it was simply in no one's interest to acknowledge the skimming. Hopefully, a clean-up is now underway that may set an example for other states' public pension systems.
Nov 21, 2007
A Nation on the Precipice: Failed Retirement Syst
A full-page insurance company advertisement in a financial newspaper today read, "Bald, helpless and broke is how to start life. Not finish it." The ad went on to warn that many people have a rosy view of their retirement savings believing they will be able to live off their pension, home equity and Social Security.
SEC Commissioners Wanted: Plaintiffs Lawyers and Consumer Advocates Need Not Apply
Oct 12, 2007
SEC Takes Action Against Callan and Yanni
As discussed in the New York Times article below, a cease-and-desist order was issued this week against a large pension consulting firm, Callan Associates, for failing to disclose to clients that it had an brokerage arrangement that could affect the objectivity of the investment advice it gave.
Sep 25, 2007
GAO Report Estimates Cost of Pension Consultant
"What do we care if there are hidden financial dealings between investment consultants and money managers to pensions, i.e., "kick-backs," if fund performance does not suffer?"Bradley Belt, Executive Director- PBGC, meeting on September 7, 2005.
Jul 1, 2007
Extreme Makeover: Defined Contribution Plans
In the past large defined contribution plans overseen by unsophisticated employees with other corporate duties, without an investment consultant or investment policy statement to guide them, utilizing well-known mutual fund families exclusively...
Jun 1, 2007
Secrets" Surrounding the NASD/NYSE Merger
This month we are disclosing documents related to the NASD/NYSE merger that question whether the proxy materials used in soliciting NASD member approval of the merger may have violated the federal securities laws.
May 30, 2007
Pensions Perilously Binging Upon Hedge Funds
As pensions load up on multi-tiered hedge fund products created and recommended by their so-called independent consultants, fiduciary principals fall by the wayside.
Why I’m Voting Against The NASD/NYSE Merger
Apparently there is a consensus that the merger of the National Association of Securities Dealers and the New York Stock Exchange’s self-regulatory organizations is a good idea. That is, there is consensus among the brokerage industry that it’s a good idea for the industry.
Dec 30, 2006
Retirement Savers Respond to Call ...
1. Retirement Savers Respond to Call for “Ownership Society”
2.Merrill Under Fire from Florida Pensions
3.SEC Scrutinizes Smith Barney in Florida
4.A Billion-Dollar Retirement Rip-Off
5.The Irrelevant SEC
Nov 3, 2006
The “No One’s To Blame Game”
Two articles presented.
The “No One’s To Blame Game” Friendly “Forward Looking Operational Audits”
Spitzer's Painful Lesson. New York State Attorney General Eliot Spitzer has been claiming plenty of credit lately for...
Worries for Defined Contribution Plan Fiduciaries
Four articles...
1.) More Worries for Defined Contribution Plan Fiduciaries and Participants.
2.)New Pension Legislation
3.) Teacher retirement fund consultant facing lawsuit
4.) How to check a broker's background
Aug 31, 2006
End of the (Presumption of) Innocence
End of the (Presumption of) Innocence “Unconditional love, critical to effective parenting, is fatal in investment matters.” -- Calvert Institute Report: The Baltimore City Retirement Systems: Heading For Trouble
Jul 25, 2006
No One's Job - Pension Pay for Play
Speech by Edward Siedle at Florida Atlantic University, School of Accounting, “Issues in IT and Compliance” Executive Program - Institutional Investor: Pension Pay-For-Play By Jonathan Keehner 5/11/2006 7:29:43 PM - Delray threatens to fire consultant as probe into pension fund drags on
Jun 1, 2006
Problems Areas for Pensions
Project 457/403(b); Project Custodial Services; Project Minority/Emerging Managers & PBGC Consultant Subpoenaed by DOL
May 2, 2006
Grand Jury Subpoena -Murders and Pensions
Grand Jury Subpoena Regarding Fiduciary Investment Solutions et al.On August 11, 2005, we received a subpoena to testify before a Grand Jury of the United States District Court for the Eastern District of Pennsylvania.
Murders and Pensions: The Need for Forensic Investigations
Speech by Edward Siedle to the International Union of Police Associations Annual Benefits Conference
Mar 28, 2006
GAO to Investigate Conflicts of Interest
GAO to Investigate Conflicts of Interest in Pension Asset Management. In a letter dated February 17, 2006 to Congressmen Markey and Miller the GAO agreed to undertake a study on how pension consultant conflicts of interest and undisclosed financial arrangements may have...
Feb 28, 2006
Why the PBGC Can’t Afford Free Forensic Audits
As detailed in the September 28, 2005 letter below to Bradley Belt of the Pension Benefit Guarantee Corporation, we met with Mr. Belt and senior staff of the PBGC on September 7, 2005 and offered to conduct forensic reviews for the PBGC of failed pensions for which the PBGC has assumed responsibility. Our reviews would focus...
Freakonomics: The Hidden Side of Managing Money
Freakonomics, in case you haven’t heard, is the name of a New York Times bestseller by Steve Levitt and Stephen Dubner. The subtitle for the book is “A Rogue Economist Explores the Hidden Side of Everything.”
The Art of Theft
How Corporate Fiduciaries Steal From American’s Pensions
Feb 2, 2005
Explaining Poorly Designed 401ks
A discussion between Fred Barstein, CEO of 401k Exchange, an online consultant to the 401k industry and Edward Siedle, President of Benchmark
Shame and Scandal in Florida PPC
Public pensions throughout Florida are being defrauded by brokers registered with Wall Street powerhouses who hold themselves out as pension experts.
Oct 2, 2004
Pension Consultant Shenanigans
In May 2004 we warned, “Faced with mounting allegations of wrongdoing, lawsuits and regulatory scrutiny, the pension consulting industry is bracing for harder times ahead.
The Heat is On Pension Consultants
Faced with mounting allegations of wrongdoing, lawsuits and regulatory scrutiny, the pension consulting industry is bracing for harder times ahead.
May 2, 2004
Great Mutual Fund Clean Up That Almost Happened
The great mutual fund clean up appears to be petering out. Increasingly it appears that industry efforts to frustrate reform initiatives will be successful. We predict the legislature will ultimately defer to the SEC and the SEC will resume its ineffectual regulation of the industry.
Apr 4, 2004
Felony Conviction: Ineligible to Manage Funds
The Investment Company Act of 1940 (the “Act”), the federal statute that provides for the regulation of mutual funds, is widely known to be a model for poor corporate governance.
Mar 28, 2004
SEC Scrutiny: A Call To Action
SEC Scrutiny of Pension Consultants: A Call To Action. The economics of pension consulting will be radically altered by the elimination of “pay-to-play” practices. Stated, disclosed fees will rise as “kick-back” schemes are exposed and pensions will benefit as consultant objectivity is enhanced.
Feb 28, 2004
2003: A Year of Awakening
In 2003 the nation’s 95 million mutual fund investors, as well as pension plan sponsors and other consumers of money management services, began learning of the pervasiveness of illegal and unethical behavior in the money management industry.
Dec 3, 2003
Consequences of the Mutual Funds Transgressions
Dire Consequences of the Mutual Fund Industry’s History of Transgressions. In a speech at the Gartner Techinvestors Summit on November 12, 2003 in New York, Edward Siedle, President of Benchmark, made the following comments regarding wrongdoing at mutual fund companies and the potential impact of such malfeasance upon certain fund complexes.
Nov 1, 2003
Early Warnings of Mutual Fund Illegalities
In 1998 and 1999 nobody wanted to hear about problems in the mutual fund industry. We did all we could to draw attention to the issue of pervasive illegal mutual fund trading. We wrote letters to the SEC and law enforcement warning of the harm to shareholders from such activity.
Invasion of the Class Action Securities Lawyers
As lawyers and marketers employed by securities class action law firms descend upon America’s pensions, questions regarding the financial arrangements these firms enter into with referring lawyers and potential plaintiffs are swirling.
Aug 1, 2003
The Illusory Protection By “Most Favored Nation's"
Pensions seeking to ensure they are paying the lowest investment advisory fees managers offer often require the managers they hire to agree to a “most favored nation’s” provision or “mfn.”
Jul 1, 2003
The “Alternative” Investment Quagmire
While pensions generally are aware that “alternative” investments such as hedge funds and venture capital funds are not regulated by the SEC or state securities regulators, few pensions fully appreciate the complexities involved in reviewing and monitoring investments in these funds. When these investments turn sour...
Why Pension Investment Advisory Fees Are So High
As a result of investment consultant conflicts of interest, lack of informed negotiations with managers and manager non-compliance with "most favored nation's" clauses, many of the nation's pensions are paying excessive investment advisory fees.
Misdeeds of Stockbrokerages Under-reported
The findings of the first edition of The Siedle Directory of Securities Dealers, a reference guide providing information regarding the integrity of the nation's stockbrokerages, were released today indicating widespread under-reporting of disciplinary actions involving stockbrokerages.
Jul 1, 2002
Compelling Pension Consultant Disclosure
The President of the Board of Trustees of a large pension fund remarked to me last week that she was not concerned about the brokerage, conference fees and other compensation her fund's consultant was earning from the fund's money managers.
Jun 1, 2002
Investigating Brokerages
At Benchmark we conduct investigations of pension fund, money manager, pension consultant and brokerage wrongdoing, virtually all on behalf of institutional clients. When appropriate, matters are referred to regulators and law enforcement. A few cases have received public attention; the vast majority have not.
Pension Consultant Conflicts of Interests
Recent articles in the New York Times and Pensions & Investments discuss a settlement between the Nashville & Davidson County Metropolitan Benefit Board and its former pension consultant UBS Paine Webber. These articles describe some of the conflicts of interest involved in the pension consulting industry.
Apr 1, 2002
NASD Threatens Suit Over the Siedle Directory
The Siedle Directory of Securities Dealers, scheduled to be released in May, may never be published if the National Association of Securities Dealers has its way.
Mar 1, 2002
An End to 401(k)s
In March 2001, when we wrote an article about the dangers of 401(k)s, the response from industry insiders was, "Are you crazy? 401(k) plans are a great deal for both participating employees and sponsoring companies.
"Insider" Commentary
"Insider" Commentary on Controversial Money Manager and Pension Issues
Dec 1, 2000
No Freedom of Information
No Freedom of Information When It Comes to Money Managers
Does the Freedom of Information Act permit the public to view the results of SEC compliance inspections of the money managers they hire? Would public scrutiny of these records have a "devastating effect" on the SEC's ability to regulate managers and cause "embarrassment," as the SEC has testified? Would "public confidence in the investment advisory industry suffer great harm?" Should our primary concern be preservation of confidence in the money management industry, even if accomplished through concealment of wrongdoing? Would investors make better decisions if they had access to this information?
The Investment Company Act of 1940:
A Statute Fostering Concealment of Mutual Fund Personal Trading Illegalities.
Letter to Barry Barbash, Director of Division of Investment Management, Securities and Exchange Commission.
Response to Request for Public Commentary
Response to Request for Public Commentary on SEC's Proposed Amendments to Rules Governing Mutual Fund Managers' Personal Trading.
Letter to Chairman Levitt, Securities and Exchange Commission.
Fund Managers' Own Trades Still a Dirty Little Secret/ Mutual Fund Investors Should Know, published in Pensions & Investments, September 20, 1999 and Investment News November, 1, 1999.
Risks Related to Privatization of Social Security: Ineffective Regulation of the Securities Industry, Article for Institutional Capitol Investing Forum, September, 1999.
SEC Investigation of Mutual Fund Directors' Personal Trading, June, 1998.
Personal Trading By Mutual Fund Managers, Published in Pensions & Investments, April 6, 1998.
Whose Money Are They Managing-Yours or Theirs? Published in Investment News, February 9, 1998.
The Brokerage Battlefield: Soft Dollars and Personal Investing By Money Managers, Speech at Philadelphia Stock Exchange for National Council on Teacher Retirement Annual Conference, September, 1997.
Proposal To Curb Soft Dollar Abuses, Letter to Chairman Levitt, Securities and Exchange Commission, July, 1997.
Take The Easy Road to Community Reinvestment Act Compliance, August, 1993.
The Future of Minority Participation In Investment Management, Report for Mutual Benefit Life Insurance Company, December, 1989.
Setting Standards For The Investment Management Industry
