Chapter 32 Wiki

840 CMR 26: Investment Consultants

Summary

840 CMR 26.00 governs the retention and qualification of investment consultants by retirement boards. Any board employing a consultant must apply to PERAC for approval using Form 25 before executing any new contract or extension. Consultants must be registered investment advisers under the Investment Advisers Act of 1940. The selection process requires boards to establish written criteria, obtain competitive proposals, and execute a written contract specifying services, fees (which must be fixed-dollar, not percentage-of-assets), and termination provisions—with no indemnification clauses. Consultants must disclose all compensation arrangements, conflicts of interest, and third-party referral fees to both the board and PERAC.

Full Text

840 CMR 26.00 is the standard rule for the retention of a consultant promulgated by the pursuant to M.G.L. c. 7, § 50 and M.G.L. c. 32, §§ 21 and 23.

26.01 Retention of a Consultant

  • (1) Any board which employs a consultant must apply for approval of the consultant from the Commission by filing an application for approval on Form 25 with the Commission. Such application shall take place with respect to consultants employed as of the effective date of 840 CMR 26.00, prior to the board executing a contract extension, renewal or new contract or six months after the effective date of 840 CMR 26.00, whichever is earlier.
  • (2) Any such consultant must be registered as an investment adviser pursuant to the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
  • (3) Any such consultant must be deemed a qualified consultant by the Commission prior to providing services to the board.
  • (4) Boards shall use the following process in selecting consultants:
  • (a) Boards shall establish specifications and criteria for selection including:

  1. whether a full-line consulting firm will be employed or whether a limited-line firm will be employed;

  2. the type of firm to be selected (a firm offering a wide range of products or services or a firm specializing in the consulting area);

  3. the experience of the consulting firm's personnel;

  4. an initial determination as to whether the existing consultant will be retained automatically;

  5. the range of fees that are considered tolerable; and

  6. the consultant's experience in policy restrictions.

  • (b) A written contract shall be executed stating all terms and conditions of employment including, but not limited to, an itemized list of services to be provided, term of employment, fees and termination provisions. No contract shall contain a provision which requires the indemnification of the consultant by the retirement board.
  • (5) Fee schedules shall not be based on a percentage of assets but shall be based on a fixed dollar amount based on services provided.
  • (6) A consultant shall inform the board of any arrangements, oral or in writing, for compensation or other benefit received or expected to be received by the consultant or a related person from others in connection with the consultant's services to the board.
  • (7) A consultant shall disclose to the Commission and the board any compensation paid or expected to be paid, directly or indirectly, by the consultant or a related person to others for referring the services of the consultant to the board.
  • (8) A consultant shall disclose to the Commission and the board in writing any conflict of interest the consultant may have which could reasonably be expected to impair the consultant's ability to render unbiased and objective advice.

26.02 Determination of Qualifications of Consultant; Review of Application

Upon receipt of a complete application for approval of a consultant, the Commission shall review the application and shall grant or deny approval of the consultant.

26.04 Qualified Consultant

A consultant is deemed qualified if the Commission approves the consultant's application for qualification.

26.05 Change of Consultant

If a board wishes to change its consultant, it must apply for approval of the new consultant in accordance with 840 CMR 26.01.

26.06 Revocation of Qualification by the Commission

The Commission may revoke a consultant's qualification if the Commission determines that the consultant has failed to comply with the requirements of 840 CMR 26.00 or has otherwise failed to act in accordance with applicable law and regulations.

REGULATORY AUTHORITY: 840 CMR 26.00: M.G.L. c. 7, § 50; c. 32, §§ 21 and 23.