Federal examiners have found that many pension-fund consultants are getting undisclosed payments from advisory firms that manage fund assets...

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WASHINGTON — Federal examiners have found that many pension-fund consultants are getting undisclosed payments from advisory firms that manage fund assets, potentially creating conflicts of interest that work against investors, officials of the Securities and Exchange Commission (SEC) said yesterday.

Perhaps even more disturbing, the officials said, was the discovery that many pension consultants do not believe they have a fiduciary duty to safeguard the financial interests of their clients — companies, foundations, and state and local governments — even though the law says they do.

The SEC discovered the latest form of conflict of interest in the securities industry in an inspection “sweep” of 24 pension consulting firms of varying sizes, a cross-section of the 1,742 such firms that operate in the country. It has significant implications for investors in company and public-employee retirement funds.

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Even if investors are not financially harmed, the conflicts of interest are a serious problem, said Lori Richards, director of the SEC’s Office of Compliance Inspections and Examinations.

“We do think these findings are very serious,” Richards said at a news conference. “This is an unhealthy dynamic.”

The inspection found that of the 24 pension consulting firms, 13 provided products and services — such as consulting and software — to their clients as well as to fund money managers and to mutual funds.

For some of the pension consultants, compensation from money managers comprised a significant part of their revenue.

Pension consultants advise pension plans and their trustees on selecting money managers, mutual funds and brokerage firms and other matters. The SEC officials are concerned that the consultants’ recommendations could be influenced by the money they received from certain money managers and mutual funds.

Richards said that “a large number” of the 24 consulting firms were referred to the SEC’s enforcement division for investigation and possible legal action for violation of disclosure rules. None of the firms were named.

She said the agency’s message to all pension consulting firms is: “We are watching. And we expect you to take a hard look at your practices” and notify clients of potential conflicts.

The SEC regulates pension consultants while the Labor Department has authority over companies that administer retirement plans for their employees — which by law must act prudently in selecting and monitoring service providers such as pension consultants.

“Working together, the agencies can ensure that conflicts of interest are disclosed and appropriately addressed,” Ann Combs, an assistant secretary at the Labor Department, said in a statement.

In recent years, the SEC has cracked down on undisclosed “shelf space” arrangements between mutual-fund companies and brokerage firms, under which the funds pay brokers for slots on lists of recommended buys for customers.