Mercer and Conflicts of Interest

[PSU Dave]

Hey All,

I know this would be better in the pension forum, but figured here it may see a bit more action. Was perusing the business section of the NY Times today and came across an article with Mercer. Basically it pointed a finger at them and compared them to accounting firms, with Mercer providing actuarial consulting for their pension plan as well as compensation consulting for a big bank involved in an acquisition. What is everyone's thoughts on this? Is it really as bad as the accounting firms and their consluting/auditing conflict of interest outlawed by Sarbanes-Oxley? Hoping to spark some discussion on this, since no one at school seemed interested in the topic.

Here's my view: Though I'm not in the working world and have no pension experience, from what I see at this point, I suppose it's possible that these two functions need to be separate. With all of the controversy surround pension insolvency, the public needs every reassurance they can get that the actuaries aren't the ones at fault for these problems. Not sure how that all pieces together, but maybe some with more knowledge in the field can give some insight.

Dave

[Malik Shabazz]

Here's a link to the article. (Register for free or use BugMeNot.)

Here are my thoughts:

The article highlights a wide-spread problem in corporate America: The managers who have been hired to serve in the best interest of the owners (i.e., the shareholders) usually work to enrich themselves at the owners' expense. The owners permit this because they are (a) individual shareholders who are too disorganized to do anything about it or (b) institutional shareholders who pursue short-term gains and don't have any incentive to do anything about it.

Is it just Mercer? Is it just compensation consultants? No and no.

[WWSituation]

I have said for a while that I would not ever be surprised to see Mercer (specifically the investment consulting practice) implicated in a corporate scandal. They have long been investigated for pay-to-play practices. In addition, think about it logically:

Marsh is the parent and they had no qualms about malfeasance to meet their goals. Putnam (another subsidiary of Marsh) was the most egregious offender of the mutual-fund market timing scandal. Why would the leaders of Mercer get a pass in that boardroom for sticking to their ethical guns (if they have any). Doesn't seem too plausible.

Pay-to-play was an issue before even Marsh and Putnam were exposed for what they were doing. However, it has been recently that Mercer is trying to change it's business model (with little success) and become a money manager. They know that they can't maintain their results in the consulting business if they can't do pay-to-play anymore.

[DW Simpson]

Originally Posted by WWSituation

Putnam (another subsidiary of Marsh) was the most egregious offender of the mutual-fund market timing scandal.

No they weren't. It was bad, but others were worse.

http://registeredrep.com/mag/finance...ous/index.html

[WWSituation]

I should have said that they were up there. It is still early today.

[WWSituation]

I should also say that I have dealt with many Mercer actuaries when we had mutual clients (I on the investment side and Mercer as the actuary) and I found them to be both very good and highly ethical.

My comments should really be isolated to the investment consulting practice, but when the rest of the family gets busted, you kind of have to give the detriment of the doubt.

[PSU Dave]

All great input guys, at least for me. Sorta gives me a clearer picture of what the whole deal is. Do you think this has any implications for acutarial consulting as a whole? Sorta makes me want to steer clear of Mercer as a potential place for me to go when I graduate May 2007. Even if they get by without any charges or serious civil settlements, seems if their overall ethical scheme is something I won't want to involve myself in as a future FSA. No need to ruin my chances out the gate.

[WWSituation]

I would in no way steer clear of Mercer based on what you read here. As it happens they are one of the most reputable actuarial consulting firms in the biz. Nevertheless, it is good to be educated about current events.

[PSU Dave]

Originally Posted by WWSituation

I would in no way steer clear of Mercer based on what you read here. As it happens they are one of the most reputable actuarial consulting firms in the biz. Nevertheless, it is good to be educated about current events.

I guess it happens that more or less I want to wait and see if any big civil suit comes out of this ordeal. I suppose many consulting firms actuarial or not will have similar conflicts of trying to do business in different areas with the same company. I don't need to be starting my carreer at the next Andersen-like fiasco. I am well aware of Mercer's reputation, but I don't want to end up in a tough situation of trying to make up lost profits because of something like this. Is this reasonable or am I making a mountain out of a molehill?

Dave

[whisper]

Originally Posted by PSU Dave

I guess it happens that more or less I want to wait and see if any big civil suit comes out of this ordeal. I suppose many consulting firms actuarial or not will have similar conflicts of trying to do business in different areas with the same company. I don't need to be starting my carreer at the next Andersen-like fiasco. I am well aware of Mercer's reputation, but I don't want to end up in a tough situation of trying to make up lost profits because of something like this. Is this reasonable or am I making a mountain out of a molehill?

Dave

Its reasonable to worry that a company you join will collapse into a big Enron-esque heap.

I don't think you have to worry about Mercer going down like a house of cards.

Furthermore, I doubt you'll be in a position where you have to make up lost profits. When starting out, you should be more concerned about getting good experience and learning how to do the job than worrying about how the company is running.