SEC Subpoenas Merrill Re. Pension Fund Conflicts of Interest

The SEC subpoena to Merrill is part of an ongoing examination into Wall Street practices. Already, the SEC has referred a dozen matters to its enforcement division for possible action.

The SEC is examining conflicts of interest among pension fund consultants. Pension fund consultants from brokerage firms, such as Merrill Lynch, may have additional conflicts compared to those not associated with brokerage firms. These conflicts of interest may include the money manager steering lucrative stock and bond trades to the brokerage firm in return for the brokerage firm consultant's recommendation of the money manager. And conflicts may include the brokerage firm consultant's recommending a money manager who trades more frequently — generating more commission revenue. The brokerage firm consultant also may not demand that the money manager charge competitively low asset based fees because that manager steers business to the brokerage firm.

Source: New York Times, December 2, 2005