Products January 14, 2021

Investment Product and Service Launches

Franklin Templeton releases research hub; CAVU launches impact investing share classes with Invesco; and Franklin Templeton grows ETF suite.

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Art by Jackson Epstein

Franklin Templeton Releases Research Hub

Franklin Templeton has launched its new Investment Institute.

It will serve as a center of excellence to harness the firm’s global investment expertise and extensive in-house research capabilities.

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Stephen Dover, currently head of equities, has been named chief market strategist and head of the Investment Institute. Terrence Murphy, CEO of ClearBridge Investments, will take on an expanded leadership role as head of equities for Franklin Templeton.

“With these appointments and the launch of the Investment Institute, we are doubling down on what sets our firm apart—unmatched insight and research from experts on the ground in over 70 offices around the globe,” says Jenny Johnson, president and CEO of Franklin Templeton. “In this time of significant uncertainty, we are uniquely positioned to help clients find signal amid the noise. Whatever the issue, whatever the region, we will marshal diverse perspectives and proprietary analysis to best serve our clients. I am thrilled to have Stephen Dover leading this new effort.”

She continued, “Terrence Murphy has done a phenomenal job at ClearBridge, and I know he will be very effective in this expanded role. More broadly, this appointment demonstrates our commitment to propelling the business forward by harnessing the great talent across our organization.”

Dover and Murphy will begin their new roles on February 1. Both will report to Johnson. 

In his new role as chief market strategist, head of Franklin Templeton Investment Institute, Dover will continue to provide market insights for the firm and will also lead the Investment Institute’s operations. He will facilitate the sharing of research through multiple channels, including data analysis, proprietary content and academic partnerships.

“The Franklin Templeton Investment Institute brings together our deep research capabilities and global insights to create a hub for knowledge-sharing across the firm’s multiple autonomous specialist investment managers,” Dover says. “The ultimate mission of the Investment Institute is to provide research and data-driven insights for our clients to help them navigate the financial markets, armed with the power of our diverse investment expertise.”

CAVU Launches Impact Investing Share Classes with Invesco

CAVU Securities LLC, a registered broker/dealer (B/D) and minority business enterprise (MBE) has launched three share classes delivered by Invesco Global Liquidity.

The new product offerings include the CAVU Securities Treasury Portfolio (Symbol: CVTXX), the CAVU Securities Government & Agency Portfolio (Symbol: CVGXX) and the CAVU Securities Liquid Assets Portfolio (Symbol: CVPXX). The new share classes seek to maximize current income within a framework geared to maximum safety of principal and liquidity.

“We are excited to join with Invesco to bring best in class asset management to our clients. By investing in the CAVU Securities Share Classes, investors will be able to drive diversity and inclusion across the business landscape as well as training and support for our country’s military veterans. As a corporate policy, CAVU will commit to giving, on an ongoing basis, a portion of the economic benefits it receives in the relationship with Invesco to organizations that fulfill universally important ESG [environmental, social and governance] mandates,” says CAVU’s CEO Greg Parsons.

“Invesco looks forward to working with CAVU to offer industry-leading investment strategies to its constituents,” adds Frank Dotro, head of global liquidity distribution for North America, Invesco. “We are excited for their three new share classes that follow our primary objective of preserving principal and liquidity, while seeking to deliver a competitive yield.”

Franklin Templeton Grows ETF Lineup

Franklin Templeton has announced the expansion of its active exchange-traded fund (ETF) lineup with the addition of Franklin Exponential Data ETF (XDAT). 

XDAT seeks capital appreciation by investing in companies focused on or expected to benefit from the use of large data sets and/or the growth of data, including the creation, collection, cleaning, analyzing, storage, securing, transport and/or sale of data. This includes, but is not limited to, cloud computing, data analysis, new security techniques, optical fiber, 5G and data center and tower infrastructure.  

“We believe the coronavirus pandemic has driven a long-term, structural acceleration of data transformation, improving the quality of businesses,” says Patrick O’Connor, global head of ETFs for Franklin Templeton. “As data continues to become increasingly important in our economy, the launch of XDAT showcases our continued efforts to remain nimble and adapt to the trends and needs of our clients in an evolving marketplace.”

XDAT is listed on the Cboe BZX Exchange Inc. (CBOE) and will be actively managed by seasoned portfolio managers Matthew Moberg and Joyce Lin within Franklin Equity Group. Both are located near Silicon Valley and have a long history of investing in the craft of innovation. 

Matt Moberg, senior portfolio manager with Franklin Equity Group, adds, “In our view, the rapid adoption of technological solutions during the pandemic is just the beginning. As we come to terms with how to live in a post-pandemic world, data is becoming essential to running a business, and those who manage it well have a competitive advantage, especially in the age of socially distancing.”

Compliance January 14, 2021

Compliance Duties and Litigation Risks in 2021

Attorneys review what regulations plan sponsors must adhere to and legal decisions to keep in mind for the new year.

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Looking ahead after the start of the new year, partners at Groom Law Group and the Wagner Law Group weighed in on new Department of Labor (DOL) rules and potential litigation that plan sponsors should be aware of.

The first DOL rule that sponsors should understand concerns new regulatory standards for fiduciary considerations of environmental, social and governance (ESG) investments, says Ivelisse Berio LeBeau, a partner with the Wagner Law Group. Berio LeBeau says ESG investing is likely to become more prevalent in retirement plans, as “more than 8,700 comments were submitted, the vast majority critical of the proposed regulation.

“The criticisms hit their mark, and the DOL subsequently eliminated all references to ESG factors in the final rule amending the investment duties regulation.” Berio LeBeau says. Thus, beginning January 12, plan fiduciaries must only consider pecuniary factors when considering ESG investments or other types of investments for a plan, she says. This is now a standard of conduct, not a safe harbor, she notes. “Benefit plan fiduciaries would be wise to review their methods for selecting investments and change them as needed to comply with the newly amended regulation,” she says.

Berio LeBeau says DOL investigators have begun to ask questions about cybersecurity issues in their investigations of retirement plans. “Recent cyber incidents with employee benefit plans have resulted in ongoing litigation, where service providers and sponsors are debating in court over their respective responsibilities,” she says. “Plan fiduciaries should consider a self-audit on cybersecurity issues in 2021.”

With respect to missing participants, she says, “the Internal Revenue Service [IRS] offered informal snapshot guidance in 2020 on what to do about missing participants, supplementing information guidance previously offered by the DOL.” The DOL also just released new guidance for plan sponsors. Berio LeBeau says plan sponsors need to “start missing participant searches by exhausting all available plan and employer records and using free internet search tools. If cost effective, plan administrators should consider using resources such as commercial locator services or credit reporting agencies as well.”

Plan sponsors also need to be aware that the Setting Every Community Up for Retirement Enhancement (SECURE) Act, starting with work performed this year, has created a new opportunity for part-time employees who work at least 500 hours in three consecutive years to be eligible for their employer-sponsored 401(k) plan, she adds. “Sponsors should ensure that their systems have been reprogrammed as necessary to comply with this new standard,” she says.

Small and mid-sized retirement plan sponsors should also keep an eye out on the developments of pooled employer plans (PEPs), Berio LeBeau says.

Also under the SECURE Act, starting last September 18, participant benefit statements needed to start disclosing potential lifetime income expectations. The DOL may also issue a rule on this, she says.

Finally, starting this summer, on July 27, retirement plan documents can be sent electronically, she says.

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Litigation

As far as litigation is concerned, the Supreme Court issued four Employee Retirement Income Security Act (ERISA) decisions last year, the most in a single year in the 45-year history of the statute, note Groom attorneys Lars Golumbic, William Delany and Samuel Levin. In addition, there were more than 2,000 ERISA class action lawsuits filed during the year, an 80% increase from 2019.

One of the Supreme Court cases concerned an employee stock ownership plan (ESOP), in which the participants alleged that the price of the company stock was inflated. The Supreme Court remanded the case back to the 2nd U.S. Circuit Court of Appeals for further consideration. However, this case, Retirement Plans Committee of IBM v. Jander “may provide a new road map for other plaintiffs to pursue claims against other ESOP fiduciaries holding public stock,” the Groom lawyers say.

In Intel Corp. Investment Policy Committee v. Sulyma, the court unanimously held that plaintiffs did not necessarily have actual knowledge of a violation sufficient to trigger a three-year statute of limitations. The lawyers say that with electronic disclosures imminent, it may be wise to require participants to acknowledge they have received and read disclosures.

In Thole v. U.S. Bank NA, the court held, in a 5-4 decision, that participants in a defined benefit (DB) plan could not sue over management of the investments because they were receiving the benefits to which they were entitled.

In Rutledge v. Pharmaceutical Care Management Association, the court unanimously held that ERISA did not preempt an Arkansas law regulating pharmacy benefit managers. This could open the door to more states regulating these managers, the lawyers say.

Last year also saw lawsuits being brought against plans with fewer than 1,000 participants and less than $100 million in assets. The themes of these cases included: not using the lowest cost share classes of funds, not offering enough index funds, offering underperforming funds or funds associated with the recordkeeper, paying for recordkeeping as a percentage of assets under management (AUM) rather than per participant, and not submitting requests for proposals (RFPs) to multiple recordkeepers.

The attorneys say they expect similar lawsuits to be brought this year.

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