Products July 12, 2018

Investment Product and Service Launches

Vanguard expands commission-free ETF transactions; MassMutual and T. Rowe Price create TDF collaboration; Johnson Investment Counsel adds Charles River as wealth management business; and more.

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Vanguard will provide commission-free online transactions for the vast majority of exchange-traded funds (ETFs).

Vanguard, which has offered commission-free transactions of Vanguard ETFs since 2010, is broadening access beyond the company’s 77 low-cost ETFs to nearly 1,800 offerings, including ETFs from BlackRock, Schwab, and State Street Global Advisors. According to the company, the program will exclude “highly speculative and complex ETFs.”

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“Vanguard has led the industry in reducing the cost and complexity of investing for all investors for more than four decades. We’ve driven down the costs of funds. We’ve driven down the cost of advice. Now, we’re driving down the cost of investing in ETFs,” says Karin Risi, managing director of Vanguard’s Retail Investor Group. “We believe giving investors access to a broad choice of low-cost, broadly diversified, commission-free investments is good for investors and good for the asset management industry.”

Vanguard expects commission-free online transactions to be available in August and will include the majority of ETFs traded on the major exchanges.

MassMutual and T. Rowe Price Create TDF Collaboration

A new family of target-date funds (TDFs) introduced by MassMutual features active management and dynamic tactical asset allocation by T. Rowe Price to help enhance return potential and mitigate risks.

According to MassMutual, the retirement funds are designed to address a spectrum of risks, including inflation, longevity, and market risks, which retirement savers face during their accumulation years and through retirement. The new TDF family is available exclusively to participants in retirement plans sponsored by MassMutual.

“MassMutual knows based on our experience as a recordkeeper that many retirement savers invest either too conservatively when starting to save for retirement or, conversely, too aggressively as they approach retirement,” says Tina Wilson, head of investment solutions innovation. “T. Rowe Price’s target-date fund solution seeks to provide savers sufficient assets at retirement to withdraw from at and through retirement, the ability to withdraw money needed to support living expenses over their lifetimes, and a potential buffer to assist with unexpected expenses, such as health care costs.”

“We are excited to work with MassMutual as the subadviser on this actively managed target-date solution,” comments George Riedel, head of U.S. Intermediaries, T. Rowe Price.  “We believe these funds can help Mass Mutual clients achieve their retirement goals.”

Johnson Investment Counsel Adds Charles River as Wealth Management Business

Johnson Investment Counsel, Inc., has chosen the Charles River Investment Management Solution (Charles River IMS) as its institutional and wealth management businesses.

According to John Investment Counsel, over 60 employees, including portfolio managers, traders, compliance and operations staff, will work on an end-to-end platform with integrated analytics and a single data source managed by Charles River. Johnson Investment Counsel has also adopted Charles River’s scenario analysis, global investment performance standards (GIPS) compliant performance measurement and attribution, composite management, portfolio construction, modelling, position management, and post-trade processing and settlement capabilities.

“For our fixed income business in particular, Charles River’s ability to integrate risk analytics, portfolio management and trade execution on a single platform will allow our portfolio managers to make more informed investment decisions and shorten the time from investment idea to execution,” says Jason Jackman, Johnson Investment Counsel. “We are also able to retire several proprietary systems, which allows us to focus on our core competency and reduce operational risk as we continue to grow.” 

“As Johnson Investment Counsel grows and diversifies their offerings, consolidating onto a more standardized investment platform helps them simplify their business model without sacrificing their critical requirements,” says Tom Driscoll, global managing director, Charles River. “Additionally, having a centralized infrastructure is more cost-efficient and keeps them up to date on the latest software capabilities.”

Ticker Tocker and Tradier Integrate to Offer Unlimited Commission-Free Equity Trades

Ticker Tocker has partnered with Tradier Brokerage, Inc., allowing all subscribers who link their Tradier accounts with the trading platform to receive an unlimited amount of commission-free equity trades for the duration of their active membership with the new Ticker Tocker platform.

Through this collaboration, Tradier clients will have no limitations on the number of equity shares that can be traded per trade and/or on the number of trades that can be placed per day, week, and/or month. The partnership is said to benefit both new and existing clients of Tradier, as long as they are active subscribers of Ticker Tocker with their accounts linked for trading through the platform.

Ticker Tocker’s invitation-only pilot program is set to go live this month and it will grant invited users exclusive early access at an initial discounted fee of $50. Monthly subscriptions, upon the platform’s official launch this September, will be $400 for leaders and $160 for general investors. 

DWS Creates Additional Xtrackers ETFs

DWS has launched five additional Xtrackers exchange-traded funds (ETFs), including three ETFs from its high yield toolbox, on Schwab ETF OneSource, Charles Schwab & Co.’s program that provides investors and advisers with access to commission-free ETF trading. 

The five newly added funds are:

  • Xtrackers High Beta High Yield Bond ETF (NYSE Arca: HYUP)
  • Xtrackers Low Beta High Yield Bond ETF (NYSE Arca: HYDW)
  • Xtrackers Short Duration High Yield Bond ETF (NYSE Arca: SHYL)
  • Xtrackers MSCI EAFE High Dividend Yield Equity ETF (NYSE Arca: HDEF)
  • Xtrackers Harvest CSI 300 China A-Shares ETF (NYSE Arca: ASHR)

“Through the most recent addition of HYUP, HYDW and SHYL to the program, Schwab clients will have a full complement of cost-effective high yield solutions to tailor their exposure to the high-yield bond market,” says Fiona Bassett, global co-head of Passive Asset Management. “In addition, Schwab clients looking for access to high-quality international dividend equities across developed market countries can get that through our HDEF fund.”

Hueler Analytics Creates Due Diligence Feature Aimed at Fiduciaries

Hueler Analytics has integrated Stable Value Compass, a new online due diligence tool designed for discerning fiduciary advisers. The company’s new tool is said to combine its stable value data with easy-to-use technology for reliable analysis and client-ready reporting.

Stable Value Compass allows fiduciaries, advisers, and consultants to compare multiple pooled funds and insurance company sponsored products across standardized data elements. The new tool enables advisers to conduct prudent analysis and make sound recommendations with Hueler’s stable value data as the foundation.

Data and Research July 12, 2018

Simpler Retirement Plan Communications Make No Difference in Employee Decisions

In conclusion, IZA says, “the data do not support the idea that presenting optional 401(k) plan information in a simpler, more compact way will improve employees’ retirement planning choices. However, we did find that financial literacy was positively associated with better choices."

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Because 45% of U.S. households with heads between the ages of 25 and 64 have insufficient retirement savings, and for working households about to retire, the median savings is a mere $12,000, IZA Institute of Labor Economics conducted a study to find out how to encourage better savings behaviors. Specifically, the “Less Is Not More” study set out to determine whether presenting retirement plan information in a more compact and accessible way increases participation and results in better investment decisions.

IZA conducted a study among newly hired employees by giving them either a short form or a long form description about a hypothetical employer-sponsored 401(k) plan. The participants were then asked a series of questions about their planned choices: whether or not they would enroll in the plan, how much they would contribute and how they would allocate their funds. IZA found no difference between those given the short and those given the long forms.

IZA then conducted a second study among business school students, who were expected to have less familiarity with a 401(k) plan, and found the same results.

When enrolling in a retirement plan is optional, IZA says, the factors that determine whether or not a worker will do so depend on their age, education level, job tenure, income, financial knowledge, plan features, peer effects and planning horizon. Automatic enrollment has been very effective, IZA says. Using data from Fortune 500 companies, auto enrollment increases participation by 85%.

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By comparison, another study found that educating new hires about the potential for future earnings by participating in a 401(k) plan increased enrollment by a single percentage point.

When a company match is offered, the likelihood of enrollment is 25% higher than when no match is offered. When the participation rate of colleagues increases by one percentage point, other workers’ enrollment increases by two percentage points. As people age, are better educated, have financial knowledge or work longer at a job, they are more likely to participate in a 401(k) plan, IZA says. In addition, people with a planning horizon of less than five years are less likely to participate than those with a planning horizon of five years or more.

When automatically enrolled, the majority of participants stick with the default deferral rate. One study found that 61% of participants do so. Another study found that by asking people to commit to using pay raises to increase their 401(k) contributions boosted deferral rates from 3.5% to 13.6% by the fourth pay raise.

IZA points to another study that found when a plan permits people to take out loans, this increases contribution rates by 2.6 percentage points.

Two different studies found that people spent between 36 minutes and one hour to decide how to allocate their money.

Framing investment information also impacts decisions. When shown one-year returns on stock funds, people assigned 41% of their portfolio to stocks. When shown 30-year simulated returns, people upped that allocation to 82%.

Another study found that 42.5% of males have at least some of their portfolio allocated to stocks, compared to 33.3% of females.

In conclusion, IZA says, “the data do not support the idea that presenting optional 401(k) plan information in a simpler, more compact way will improve employees’ retirement planning choices. However, we did find that financial literacy was positively associated with better choices. This suggests that increasing financial literacy would improve decision making regarding 401(k) plans. In addition, given that so many people choose the default options, it may be ideal to design those defaults in such a way as to improve individuals’ outcomes.”

IZA’s full report can be downloaded from here.

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