Last May, the Securities and Exchange Commission discovered that the pension consultant industry has been experiencing widespread conflicts of interest. The primary issue was the discovery that the majority of pension consultants in the SEC study provided products and services to both pensions plans and money managers, which was not disclosed to the company’s management. Other improprieties include pension consultant affiliates who had worked with pension plan sponsors.

The study concluded that company executives need to be sure they are receiving objective advice from their consultants. To help companies with this endeavor, the SEC created 11 questions companies should ask pension consultants. Examples include asking consultants whether or not they receive money from the plans they are sponsoring, as well as asking consultants to describe their procedures in addressing possible conflicts of interest.

The more important issue is clarifying the specific role of the consultant. It’s essential to have the consultant’s role established before signing a contract. Another suggestion is to obtain feedback not only from the pension consultant’s reference, but other companies the consultant worked with that are not listed as references. However, it’s important to research each situation, since getting fired could be a result of the consultant having a high ethical standard, depending on the case.

Companies should also ask potential consultants about relationships with sponsors besides financial, such as family ties or close friends. Industry conferences are another potential conflict of interest. Although no money may be exchanged outright, perks such as free stays at expensive hotels are designed to influence judgment. Companies with 410(k) plans need to be especially vigilant about revenue-sharing, and the SEC is currently examining how companies that service 401(k)s are being compensated.

Possible solutions include internal audits of pension consultants to make sure their records are in order. Other companies are implementing training programs for consultants so they fully understand their responsibility to the company.