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Home My WebLink AboutDocumentation_Pension Public Safety_Tab 16A1_08/11/2005`~' 1 Gwen Carlisle From: Karen Amenita [karena@hpjlaw.com] Sent: Thursday, July 07, 2005 11:52 AM To: jnewell@tequesta.org; tpatemo@bellsouth.net; rgarlo@tequesta.org; c28hansen@aol.com; GCARLISLE@tequesta.org Cc: Bonni S:Jensen Subject: Fiduciary Monitoring of Pension Consultants ~ ,,:.;.i T Quest.pdf Please see attached memo from Bonni regarding Fiduciary Monitoring of Pension Consultants, and "Consultant Questionnaire" which follows the memo. Bonni suggests that you to add this item to your agenda for your next meeting. Karen Amenita <karena@hpjlaw.com> Legal Assistant to Bonni S. Jensen Hanson Perry & Jensen, PA 400 Executive Center Drive, Suite 207 West Palm Beach, FL 33401-2922 561-686-6550 (Phone) 561-686-2802 (Fax) 1 HANSON, PERRY $z. JENSEN~ P.A. 4OO EXECUTIVE CENTER DRIVE, SUITE 2O7 -WEST PALM BEACH, FLORIDA 33401-2922 JILL HANSON TELEPHONE (561) 686-6550 n~,~,,~ .so. ~i~i~ I ,~ :c~ ~ FACSIMILE (561)686-2802 ANN H. PERRY BONNI SPATARA JENSEN MEMO TO: Board of Trustees Tequesta General Employees Pension Fund FROM: Bonni S. Jensen Fund Legal Counsel DATE: July 2005 RE: Fiduciary Monitoring of Pension Consultants You may be aware of recent controversies regarding the role of pension fund consultants or monitors. For the most part, questions pertain to actual or perceived conflicts of interest by such consultants. Recently, the Securities and Exchange Commission (SEC) released a staff report regarding its examination of pension consulting practices and the disclosure of conflicts of interest. After the release of the SEC staff report, the SEC and the U.S. Department of Labor published a set of ten questions for use by plan fiduciaries to assist in evaluating the objectivity of investment advice being provided by pension consultants. Attached to this memo are the ten sample questions for consultants recommended by the SEC and Department of Labor. There are also eleven supplemental questions that will facilitate additional disclosure. We are recommending that pension trustees continue to monitor potential conflicts of interest with all service providers. We further recommend that trustees engage in meaningful discussion with their pension consultant regarding this topic. Use of the attached questionnaire enables trustees to prudently exercise your fiduciary duty. Please add this to your agenda for your next meeting. CONSULTANT QUESTIONNAIRE 1. Are you registered with the SEC or a state securities regulator as an investment adviser? If so, have you provided the Fund with all the disclosures required under those laws (including Part II of Form ADV)? 2. Do you or a related company have relationships with money managers that you recommend, consider for recommendation, or otherwise mention to the plan for consideration? If so, describe those relationships. 3. Do you or a related company receive any payments from money managers you recommend, consider for recommendation, or otherwise mention to the plan for consideration? If so, what is the extent of these payments in relation to your other income (revenue)? 4. Do you have any policies or procedures to address conflicts of interest or to prevent these payments or relationships form being considered when you provide advice to your clients? 5. If you allow plans to pay your consulting fees using the plan's brokerage commissions, do you monitor the amount of commission paid and alert plans when consulting fees have been paid in full? If not, how can a plan make sure it does not over-pay its consulting fees? HANSON, PERRY & JENSEN, P.A. WEST PALM BEACH, FL 33401-2922 Page -2- 6. If you allow plans to pay your consulting fees using the plan's brokerage commissions, what steps do you take to ensure that the plan receives best execution for its securities trades? 7. Do you have any arrangements with broker-dealers under which you or a related company will benefit if money managers place trades for their clients with such broker-dealers? 8. If you are hired, will you acknowledge in writing that you have a fiduciary obligations as an investment adviser to the plan while providing the consulting services we are seeking? 9. Do you consider yourself a fiduciary under ERISA with respect to the recommendations you provide the plan? 10. What percentage of your plan clients utilize money managers, investment funds, brokerage services or other providers from whom you receive fees? HANSON, PERRY & JENSEN, P.A. WEST PALM BEACH, F133401-2922 Page -3- 11. For the last completed calendar year, please list all services provided by your firm, the nature thereof, and the dollar revenue or percentages of total income that each service represents. In your response please include the percentage of revenues both the firm and the ultimate parent company (if applicable) received from the following sources (total should add to 100%): Investment consulting services 100% a. Revenues from investment management organizations b. Revenues from brokerage activity c. Revenue from tax exempt institutional investors d. Revenue from high net worth individuals e. Revenue from other sources (please specify) 12. Does the firm, its affiliates, or the ultimate parent of the firm act as a securities broker-dealer or introducing broker for clients? If yes, please provide the following information about the firm's brokerage activity operating policies: a. Does the firm, its affiliates, or the ultimate parent of the firm accept soft dollars a method of payment for services provided? Once a client's consulting fees are paid in full for a given year, how are the additional commissions allocated? b. What percentage of commissions are credited to the client or are offset against consulting fees? What percentage does the firm retain? c. Does the brokerage operating accept "free trades"? (i.e., trades unconnected to a commission recapture or directed commission program.) HANSON, PERRY & JENSEN, P.A. WEST PALM BEACH, FL 33401-2922 Page -4- 13. Does the firm, its affiliates, or the ultimate parent of the firm receive revenue, non- cash in-kind benefits, or similar perquisites from investment managers for consulting services or business functions provided, including, for example software sold, attendance at conferences, access to managerdatabases, orforany other reason? (Please specify type, source, and amount of revenue or such non-cash in-kind benefits, or perquisites.) 14. If the firm accepts revenues from investment managers or acts as a securities broker or introduang broker, please provide the following information about the firm's operating policies. a. Is there physical separation between the consulting area and the area(s) with manager revenue/broker activities? Please describe. b. Is there personnel overlap between the consulting area and the area(s) manager revenue/broker activities? c. What parties have oversight authority for both the consulting area and the area(s) with manager revenue/brokerage activities? d. What fire walls are in place to prevent the personnel and systems of the consulting area and area(s) with manager revenue/brokerage activities from sharing information? 15. Does your firm or any affiliates provide investment related products or services to both pension plan advisory clients and money managers? If so, please describe the services provided for money managers. HANSON, PERRY & .IENSEN, P.A. WEST PALM BEACH, FL 33401-2922 Page -5- 16. Is your firm associated with an affiliated broker-dealer? If commission recapture/soft dollar arrangements are offered, please describe how the program provides assurances of best execution. 17. Please describe your policies and procedures that ensure that the firm's advisory activities are insulated from any other business activities. 18. Please describe your policies and procedures that ensure that all disclosures required to fulfill fiduciary obligations are provided to advisory clients. 19. Please describe your policies and procedures to prevent/disdose conflicts of interest with respect to the use of brokerage commissions, gifts, gratuities, entertainment, contributions, donations and other emoluments provided to clients or received from money managers. 20. Please describe any affiliations or business relationships with other pension consultants, consulting firms, investment management investigation companies or class action law firms. 21. Please provide the names of all institutional dients lost in the past two years (specify the year for each). Please also provide reasons for such loss. a. Year 1: b. Year 2: HANSON, PERRY & .JENSEN, P.A. W EST PALM BEACH, FL 33401-2922 Page -6- ADDITIONAL INFORMATION Please provide copies of the following additional information: • Current firm policies and operating procedures related to conflicts of interest. • Most recently filed SEC Form ADV, Parts I and II • Current firm policies and procedures related to the reporting of compliance issues to the Board. • Any documents referred to in your answers set forth above. BSJ/ka July 6, 2005 H:\Tequesta GE 1012\Vendors\Monitor\T Quest.wpd HANSON, PERRY & .JENSEN, P.A. WEST PALM BEACH, FL 33401-2922 Page -7- * Gwen Carlisle From: Betty Laur [blaur@tequesta.org] Sent: Friday, July 08, 2005 9:58 AM To: Edward Sabin; Geraldine Genco; James Weinand; Carl Hansen; Jeff Newell; Robert Garlo; Tom Paterno; Anne Koch Cc: Gcarlisle@tequesta.org; karena@hpjlaw.com Subject: FYI Selecting and Monitoring Pension Consultants/Tipsfnr Plan Fiduciaries FYI - The following e-mail was received from Vice Chair Genco in response to the memo from Bonni regarding Fiduciary Monitoring of Pension Consultants and Consultant Questionnaire: Hi Chief, Bonnie- Thanks for the reminder of our responsibilities. Could we make this a "received and filed report" with the attachment from the SEC, see below hyperlink. I recall discussion of most of them at the time we interviewed both Boghdan and Rockwood. Additionally, the hyperlink will redirect to a number of educational sites which some of the consultants might find interesting. Maybe Gwen can forward it to the members of both boards? Click here: http://www.sec.gov/investor/pubs/sponsortips.htm (Selecting and Monitoring Pension Consultants: Tips for Plan Fiduciaries) the securities it purchases. Do you have any arrangements with broker-dealers under which you or a related company will benefit if money managers place trades for their clients with such broker-dealers? As noted above, you may wish to explore the consultant's relationships with other service providers to weigh the extent of any potential conflicts of interest. 8. If you are hired, will you acknowledge in writing that you have a fiduciary obligation as an investment adviser to the plan while providing the consulting services we are seeking? All investment advisers (whether registered with the SEC or not) owe their advisory clients a fiduciary duty. Among other things, this means that advisers must disclose to their clients information about material conflicts of interest. 9. Do you consider yourself a fiduciary under ERISA with respect to the recommendations you provide the plan? If the consultant is a fiduciary under ERISA and receives fees from third parties as a result of their recommendations, aprohibited transaction under ERISA occurs unless the fees are used for the benefit of the plan (e.g., offset against the consulting fees charged the plan) or there is a relevant statutory or class exemption permitting the receipt of such fees. 10. What percentage of your plan clients utilize money managers, investment funds, brokerage services or other service providers from whom you receive fees? The answer may help in evaluating the objectivity of the recommendations or the fiduciary status of the consultant under ERISA. For more information on the SEC staff's findings, please read Staff Report concerning Examinations of Select Pension Consultants. Plan trustees, pension consultants, and other service providers can learn about their Fiduciary responsibilities under the Employee Retirement Income Security Oct (ERISA) by visiting the website of the Department_of Labor. Pension consultants who have questions concerning their obligations under the [nvestment Advisers Act of 1940 should either consult with an attorney who specializes in the federal securities laws or contact the staff of the SEC's D_vision_of Investment Management. '~ttp://www. sec. gov/investor/pubs/sponsortips. htm http://www.sec.gov/investor/pubs/sponsortips.htm 7/22/2005