When the government starts scrutinizing an industry more closely, the affected businesses usually complain they’re being smothered.
But in the case of new federal monitoring of pensions and retirement plans, more scrutiny forced open the marketplace for a group of local consultants.
Nine months later, the group’s new company, Windsor-based Fiduciary Investment Advisors, has 90 clients who manage more than $6 billion.
Until recently Mark R. Wetzel was a senior vice president at UBS Financial Services, in Hartford, and chair of the firm’s PRIME advisory committee. He and his team did their best to act independently and offer objective advice to fiduciaries, but he felt as though there was growing discomfort among his customers with the fact that Wetzel worked for an international brokerage firm that was simultaneously hawking investment plans.
“It really seemed like the marketplace was demanding and looking for independence,” Wetzel said.
Objectivity Demanded
There was good reason for that, and a lot of it came from federal regulators. Though Enron and Sarbanes-Oxley already had fiduciaries looking more closely at their portfolios, the U.S. Department of Labor, charged with requiring that fiduciaries of employee benefits manage their plans responsibly, began to issue warnings about the relationships between pension consultants and money managers.
A 2005 report by the U.S. Securities and Exchange Commission then suggested that some consultants weren’t disclosing the relationships they had with managers, nor the fees they collected for sending business their way. The DOL followed that up with a questionnaire for fiduciaries to pose to their consultants, which asks about conflicts of interest and relationships with money managers in 10 different ways.
Suddenly, fiduciaries started looking at the fees they were paying for supposedly objective advice, and they didn’t like what they saw.
“Fiduciaries who weren’t really thinking about it before were realizing that they needed to think about that … and then when they started to dig under the hood they realized there were a lot of places to hide fees,” Wetzel said.
Wetzel and 15 members of his team bolted the PRIME division of UBS to start Fiduciary Investment Advisors in April of last year. UBS officials declined to comment on the move.
But Wetzel said the idea was simple: The firm would accept no brokerage fees or commissions. It would draw clients who had opted for the rigor suggested by the federal government and decided they wanted consultants with clear, tangible independence.
It’s not a new idea, but it is one that’s likely to see more market players in the future.
Bill Woollacott also offers pension consulting as an actuary for Sibson Consulting, with offices in Farmington. He said a division like PRIME, at UBS, may feel independent but not look that way to fiduciaries.
“It comes down to the question of who you’re working for,” Woollacott said.
