Mercer Investment Consulting Ends Global Membership Group

October 29, 2004 (—Mercer Inc's Investment Consulting practice, a division of Marsh & McLennan, announced that it will end its Global Investment Forum (GIF) after its final event in Tokyo in December.

Mercer said in a statement that the closing of the group comes as a result of “changes in the regulatory environment and client expectations since the launch of the program.”

Even though Mercer believes “that the Forum delivers a valuable service and has always operated according to the highest professional and ethical standards,” its statement said the company came to believe it was “prudent to discontinue the Forum.”

GIF is a membership organization, meaning people paid to take part and included about115 institutional asset managers, according to a company statement.   It was created in 1998 to “explore and debate issues relevant to institutional fund management.”   The forum provides research and surveys as well as worldwide conferences on issues pertaining to pension plan sponsors, global investment management organizations, and Mercer investment consultants.

Mercer’s move comes amid a broad examination launched last December by the US Securities and Exchange Commission (SEC) of retirement-fund consulting to determine whether consulting firms and money-management companies engaged in quid pro quo arrangements. The SEC also set out to examine whether clients were informed of any financial relationships between their consultants and the management companies they recommend. There have been questions asked regarding whether or not plan sponsors, who depend heavily on their investment consultants, are being provided with unbiased information or whether they are only getting recommendations to money managers who have paid consultants for endorsements, so-called “pay to play” arrangements.   Mercer Investment Consulting acknowledged that it received a letter from the SEC as part of that examination and said it was cooperating (See  SEC Looks At Consultant, Pension Fund Relationship )

Industry Changes

Although there have not appear to have been many changes in the investment consulting industry yet as a result of the SEC investigation, some companies have, like Mercer, changed their businesses.   In early March, Watson Wyatt Worldwide sponsored their annual Global Asset Study (GAS) meeting in the US, as it has been doing for approximately four years, but changed its attendance policy.  As usual, a small group of money managers gained access to this exclusive event, held this year in Boston, as well as two others overseas, by paying WWW a yearly membership fee for the privilege of gaining up close and personal access time with consultants.  However, while some money managers had, in fact, paid a fee to attend, many more attended who had not.  (See  “Pay to Play” Scrutiny Has Consultants Rethinking Business Structures )

Earlier this year, Wilshire Associates, a California investment advisory firm, reorganized to avoid conflicts of interest, separating the consulting division and the funds management division, each with a new chief executive (see    Nesbitt Exits Wilshire Associates ).  Watson Wyatt took the reorganization a step further in March, splitting its strategic consulting arm that serviced money managers from its core investment consulting business for institutional investors, creating a new Boston-based unit called Spring Consulting Group (see    Watson Wyatt Spins Off Spring Consulting ).  However, although the Spring Consulting Group has been moved off site, the 15-person group will still work very closely with Watson Wyatt.

Marsh & McLennan has been involved in multiple investigations of late.   In mid-October, New York state Attorney General Eliot Spitzer announced a civil suit against Marsh & McLennan, calling the incentive fees it received "kickbacks" and saying they contributed to clients being forced to pay more than necessary for property and casualty insurance (See  Spitzer Takes On Contingent Commissions ). Spitzer also accused Marsh & McLennan of bid-rigging and price fixing and said he wouldn't deal with the current management. Following this, Jeffrey Greenberg, Marsh & McLennan's CEO, resigned earlier this week.

Putnam Investments, another division of Marsh & McLennan, was involved last year in the mutual fund market-timing and late-trading investigation.   In April the firm agreed to pay $10 million in disgorgement and a $100 million penalty in agreements with the US Securities and Exchange Commission (SEC) and Massachusetts Secretary of State William Galvin to settle charges related to the investigation. (See  Details Emerge About Putnam Settlement ).

In June, Marsh & McLennan decided to merge Putnam's defined contribution plan servicing group with Mercer HR Outsourcing, another Marsh & McLennan company (See  Marsh Melds Mercer, Putnam DC Operations).