Compliance December 5, 2022

Fed Proposes Principles for Big Banks to Manage Climate Risks

The proposed framework calls on large banks to account for economic risks related to climate change.

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The Federal Reserve on Friday published proposed principles to manage climate-related risk for financial institutions with more than $100 billion in assets managed. The principles are similar to the principles proposed by the Office of the Comptroller of the Currency in December 2021 and the Federal Deposit Insurance Corporation in March.

The proposed guidelines aim to address physical and transitional climate risk. Physical risk refers to natural phenomena that would increase in frequency and/or intensity as a result of climate change, such as drought and storms, that could present physical risk to assets held by large financial institutions. Transitional risk refers to the financial risk of holding certain assets, given the ongoing transition away from fossil fuels.

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The proposal defines the institutions to which it would apply as including state member banks, bank holding companies, savings and loan holding companies, foreign banking organizations with respect to their U.S. operations and non-bank systemically important financial institutions supervised by the Federal Reserve Board.

The principles advise that these institutions make governance changes so that board members are aware of climate risk and require management to consistently report on that risk. They also advise incorporating climate risk assessment into formal policies and procedures, making climate risk part of overall business strategy and obtaining access to relevant data.

This proposal follows a series of executive agency proposals related to climate risk. Not only have the OCC and FDIC published similar proposals, but the SEC also proposed a rule that would require climate-related disclosure from public companies, including the companies’ direct greenhouse gas emissions and the emissions in their value chain. The SEC proposal was issued in March.

Congressional Republicans have pushed back against the SEC proposal in the form of legislation. On Friday, Republican members of the House introduced the Mandatory Materiality Requirement Act, which aims to prevent the SEC from requiring climate-related risk disclosure. A companion bill of the same name was introduced by Senate Republicans in September.

Investing December 2, 2022

Morgan Stanley Expands Robo-Advising Tech with Blooom Purchase

Morgan Stanley grows its retirement offering with purchase of 401(k) robo-adviser Blooom's technology. Former Blooom customers are back in the hands of their recordkeepers.

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A 401(k) robo-adviser that offered everyday 401(k) retirement savers a low-cost service to enhance their investments has shuttered its doors on clients while selling its technology to Morgan Stanley.

Blooom, based in Leawood, Kansas, posted a message on its website in November that it was shutting down its service “effective immediately,” but that the company was starting a “new chapter” that “will ultimately result in an enhanced offering in the retirement marketplace.”

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Morgan Stanley, meanwhile, has purchased the firm’s robo-adviser technology and brought on some of Blooom’s employees.

“To help bolster our retirement offering, we can confirm we bought components of Blooom’s technology in an asset purchase, while onboarding the Blooom team,” the spokesperson said in an emailed response.

The Kansas City Business Journal reported on November 18 that Blooom was shutting down its direct-to-consumer operations, but told the KCBJ it was not going out of business. On Thursday, RIA Biz noted that high-level staffers, including Chris Costello, CEO and co-founder, moved to Morgan Stanley. Costello’s LinkedIn profile lists him as an executive director at Morgan Stanley @ Work, the investment firm’s workplace financial solutions provider.

The firm declined to provide further details of the transaction. Morgan Stanley has been investing in its Morgan Stanley @ Work platform, most recently partnering with Carver Edison for expanded access to employee stock purchase plans.

Blooom executives and customer support team did not immediately respond to request for comment. The company said on its Q&A page that customers seeking an adviser would not be able to reach anyone as their advisers “will no longer be available during this transition period.”

Blooom reported having $5 billion in assets under management from clients who hired Blooom to manage their retirement plan investments for a flat annual fee, reportedly giving their credentials to the firm so its personnel could access these accounts. Those customers, according to a Q&A on Blooom’s website, are no longer getting those services and should revert back to their retirement plan holder to access their accounts. Blooom also said it had begun processing refunds and that clients should allow up to 10 business days to receive. The company did not say from what date refunding would start.

The Q&A notes that user credentials, such as IDs or passwords, will be permanently deleted, but that “Blooom will retain an archive of past transactions, correspondence, and other key information to meet its compliance obligations with the SEC.”

The firm also has language that appears to refer to the Morgan Stanley transaction, noting that Blooom “may transfer your contact and related client financial information, which is permissible under the terms of the client agreement and our privacy policy.”

It notes that “we or a future partner may be in touch with you in the future to discuss how to support you in achieving your long-term financial goals.”

Blooom has said its mission was to provide expert retirement help “to those previously overlooked by traditional financial advisers.” The platform provided a free analysis of a participant’s account to “identify unnecessary hidden investment fees, ideal diversification and investment risk.” If a participant signed up for Blooom’s robo-management, they would be charged a flat annual fee ranging from $125 to $295, according to a NerdWallet write-up.

Blooom had been successful in raising financing over the years, including from fintech venture capital firm QED Investors and Allianz Life Ventures, the VC-division of Allianz SE. In 2015, Blooom was among 10 firms given a Launch KC grant, which included $50,000 and 12 months of free office space in the city.

Robo-advisers have become an increasingly prevalent service for everyday retirement savers to get relatively low-cost investment guidance and management. Robo-advisers Wealthfront, Betterment, SoFi Automated Investment and Ellevest were among firms named by NerdWallet as the year’s best.

This June, the Securities and Exchange Commission said it charged Charles Schwab for “not disclosing that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions.”

Charles Schwab in a release said it settled the matter regarding certain historic disclosures and advertising related to Schwab Intelligent Portfolios between 2015 and 2018. The investment firm said it “neither admits nor denies the allegations in the SEC’s Order,” and that resolving the matter was in the best interest of clients, the company, and stockholders.” Part of the settlement included the subsidiaries retaining an independent consultant to review their policies and procedures relating to robo-adviser disclosures; advertising and marketing; and to ensure they are effectively following policies and procedures.

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