Pension board debates next step

The Longboat Key Firefighters Pension Board is not sure how it should proceed now that a $50,000 forensic investigation of its pension has been released.

At its Wednesday, May 25 quarterly pension meeting, Morgan Stanley Smith Barney investment consultant Joe Carter denounced the investigation by Benchmark Financial Services President Ed Siedle.

Siedle, who has already been paid for his investigation, targeted Morgan Stanley in his report, which claimed that the company may have breached its contract with the pension board by making improper trades and accepting money from money managers with whom it works.

Carter strongly defended his company and its practices at the meeting.

“We don’t accept a dime of money offered to us by money managers as some others do in the industry,” Carter said. “I am disappointed that one guy can come in and state a bunch of ‘could be’ and ‘would be’ suggestions and they are all presumed as being true. He didn’t prove anything. All he did was collect $50,000, inject a bunch of half-truths and tried to tell the firefighters he could bring a bunch of money back into the plan.”

Even though pension board members agreed they are not sure that some of Siedle’s report is worth investigating, the accusations are troubling for some board members. 

Pension board member Gerald Feder suggested the board put out a request for proposals (RFP) to interview other investment consultants, as well as Morgan Stanley, to make sure the board has the best consultant moving forward.

“I’m not comfortable, generally, with the nature of the contracts that exist with Morgan Stanley and the structure of the relationships,” Feder said. “I’m not sure I really trust Morgan Stanley anymore, to be honest, knowing that there have been similar issues in other towns and lawsuits have been filed against them.”

The suggestion upset Carter, who said his company would decline to participate in the RFP process.

“We won’t participate in the RFP process, because if you aren’t happy with us now, you won’t be happy with us during the RFP process,” Carter said.

Carter said his company has done a good job over the last 10 years and noted that the plan had $5.4 million in total funds 10 years ago and now has $11.6 million in funds.

“We have outperformed our benchmarks, and that should mean something,” Carter said. “You will be wasting more money to go through a process you don’t need.”

Pension board member Shannon Gault agreed with Carter on both his assessment of Siedle and the company’s performance.

“We had to pay Mr. Siedle a payment before we were even allowed to meet him,” said Gault, noting that a Burlington, Vt., lawsuit against Morgan Stanley that Siedle was involved in led to no extra money for its pension plan. “I don’t want to end up with a lesser-qualified manager that will cost this fund more money.”

Key resident and former pension board member Arnold Malasky told the board that the pension fund’s performance has outperformed its benchmarks in the last five years. He said that Siedle has not returned his calls to discuss his findings and his request for Siedle’s data, which Siedle says shows the fund has not lived up to its benchmarks.

Pension board attorney Bob Sugarman told the board members it would be good to solicit RFP proposals to make sure it’s comfortable with its consultant.

Sugarman also encouraged the board to take solace in the fact that, if nothing else, Siedle’s report proved the board that the town and its actuary firm have done nothing wrong.

Sugarman also warned the board that suing Morgan Stanley might not produce any money for its pension.

The board agreed to hold off on the RFP process until Morgan Stanley can answer a list of questions the board has about its practices (see sidebar above).

“I don’t want to spend any more money,” said pension board Chairman Keith Tanner. “I would like to give Morgan Stanley a chance to respond.”

Response requested
Morgan Stanley Smith Barney, the Longboat Key Firefighters Pension Board investment consultant, must come back to the board at its August quarterly meeting to answer the following questions:

• How do money managers get selected to work with Morgan Stanley?
• Would it be cheaper or more expensive to have services with Morgan Stanley bundled, like the plan does now, or unbundled? A breakdown of fees for both ways must also be provided.
• Can the pension plan’s performance numbers be certified that they are all in accordance with industry standards?
• Will Morgan Stanley, in the future, keep the board up to date on what money managers are paying Morgan Stanley to continue using the services of the investment consultant?

Contact Kurt Schultheis at [email protected].