Products August 10, 2017

Investment Products and Services Launches

Vanguard updates benchmarks for bond funds; USA Financial adds asset managers to platform; Voya cuts fees on Large-Cap Growth Fund; and more.
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BRI Launches Small Cap Index Powered by Wilshire
 
The BRI Quality Small Cap Index Powered by Wilshire provides an enhanced beta benchmark for U.S. small cap equities. It uses a systematic, rules-based approach to create a portfolio of U.S. small-cap equities. The enhanced factor beta is unique to the stocks of small-capitalized companies. The index also leverages various selection criteria metrics to avoid stocks that are unprofitable, stocks that are the most volatile, and stocks that have the highest short-interest.

“The new BRI Quality Small Cap Index delivers enhanced beta returns previously available only through active strategies for a fraction of the cost,” says BRI Founder Adam Brass. “Investors and asset managers are deeply engaged in debate about alpha, beta, smart beta and passive versus active strategies. At BRI we have a clear focus. We are raising the bar on outdated passive market beta investments to deliver enhanced performance to investors.”

He adds, “Hundreds of billions of dollars have shifted from active strategies to passive index investing for good reason: nearly 85% of active managers consistently underperform their benchmark. Now investors can get the benefits of active in a passive product.”

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The index is owned and was created by BRI Partners.

“Aligned with Wilshire as our index consultant and calculation agent, our objective to create a family of indexes that deliver enhanced beta on both traditional long-only and absolute return strategies continues to build,” says Brass.

For more information about the newly launched BRI index, visit https://wilshire.com/indexes/poweredbywilshire/bri-quality-small-cap-index.

NEXT: First Trust Launches Equity Index ETF

First Trust Launches Equity Index ETF

The First Trust Dow 30 Equal Weight ETF [exchange-traded fund] seeks investment results that generally correspond to the price and yield, before fees and expenses, of the Dow Jones Industrial Average Equal Weight Index.

“The Dow Jones Industrial Average has been an important barometer for blue-chip US stocks,” says Ryan Issakainen, senior vice president, ETF strategist at First Trust. "The DJIA is a price-weighted index, comprised of 30 well-known, mega-cap companies. In contrast, the DJIA Equal Weight Index gives the same weight to each of the 30 constituents, allowing all companies to contribute equally, regardless of their price, which we believe may significantly reduce stock specific risk relative to price weighting. We believe that the equally weighted version of this index is a noteworthy enhancement for ETF investors, in comparison to the traditional price-weighted version of the index.”

S&P Dow Jones Indices expressed a similar sentiment: “We are excited to license the Dow Jones Industrial Average Equal Weight Index to First Trust Advisors,” says Joe Kairen, senior director, Strategy Indices at S&P Dow Jones Indices. “The equal-weighted design of the index allows for each of the 30 companies in the Dow Jones Industrial Average, an iconic indicator of investor sentiment for more than 120 years, to have the same effect on its performance.”

NEXT: Vanguard Updates Benchmarks for Bond Funds

Vanguard Updates Benchmarks for Bond Funds

Vanguard announced plans to change the target benchmarks of three government bond index funds and exchange-traded funds (ETFs) to pure Treasury indexes.

The Vanguard Short-Term Government Bond Index Fund and ETF, Vanguard Intermediate-Term Government Bond Index Fund and ETF, and Vanguard Long-Term Government Bond Index Fund and ETF are expected to transition from Bloomberg Barclays U.S. Government Float-Adjusted indexes to Bloomberg Barclays U.S. Treasury Float Adjusted indexes in the fourth quarter of this year.

“Following the transition, the funds will offer investors pure exposure to discrete segments of the U.S. Treasury market and provide them the flexibility to tailor their bond portfolios to reflect their risk and return objectives,” says Greg Davis, Vanguard’s chief investment officer. “In addition, with the greater liquidity in the Treasury market, we expect that the bid-ask spreads on the funds’ ETF shares will be considerably lower.”

Advisers, institutions, and individual investors will have a choice of index or active options in a range of maturities covering the corporate and U.S. Treasury market.

“Vanguard will continue to look for opportunities to broaden our bond ETF lineup with products that meet a durable and long-term investment need,” says Davis. The firm notes that despite a low-yield environment, bonds can play a critical role as a diversifier in investors’ portfolios.

John Hollyer, global head of Vanguard Fixed Income Group adds: “We believe bonds are an important component of a balanced portfolio, and investors should have exposure to both domestic and international bonds. Investors should also pay close attention to costs, as the impact of fees is amplified in a low-yield market environment.”

Vanguard expects no changes to the funds’ expense ratios and minimal, if any, capital gains realizations as a result of the transition.

NEXT: USA Financial Adds Asset Managers to Platform

USA Financial Adds Asset Managers to Platform

USA Financial Exchange has added Horizon Investments and Flexible Plan Investments to its list of asset managers on its turnkey asset management program (TAMP). The TAMP makes available dozens of institutionally managed investment strategies through a unified management account (UMA).­

Both firms expand USA Financial’s list of asset managers, which includes BTS Asset Management, Symmetry Partners and USA Financial Portformulas, among others.

“We’re not looking to add asset managers for the sake of adding managers,” says Matt McGrew, chief operations officer of USA Financial. “Our primary goal is to add managers with strategies that complement one another in the asset-management equation and are willing participants in partnering with us to educate and explain how their strategies work within an investment portfolio. Horizon and FPI each have a unique set of strategies that we’ve made available on the platform including some income-based solutions, as well as socially responsible and faith-based strategies."

NEXT: Voya Cuts Fees on Large-Cap Growth Fund

Voya Cuts Fees on Large-Cap Growth Fund

Voya Investment Management has slashed management fees and total expense ratios across all share classes of its Large-Cap Growth Fund.

The firm has also eliminated all waivers except for the one on Class I shares. In addition, 12b-1 fees for Class A shares have dropped from 0.35% to 0.25%. Across all share classes, the fund’s management fees have declined from 0.80% to 0.51%.

"On a regular basis, Voya's Product Team evaluates fees across our entire product line-up, relative to peers," says Jake Tuzza, managing director and head of Intermediary Distribution.  "We believe these changes position our fund competitively versus the Morningstar Large-Cap Growth Category peer group."

The Voya Large-Cap Growth Fund invests in stocks of large-sized U.S. companies within the range of companies in the Russell 1000 Growth Index. The Fund uses a fundamentals-based stock selection that seeks companies with positive business momentum, market recognition, and valuations with upside potential.

The investment team is led by Jeff Bianchi who has been on the Large-Cap Growth team since 1995. He became a portfolio manager for the fund in 2000. The Large-Cap Growth team manages a total $11.7 billion in assets across mutual fund, collective investment trust (CIT) and separate account vehicles.

"Our investment process is aimed at creating consistent and reliable returns with attractive risk-adjusted performance," says Tuzza.

For more information about the fund and a summary of its new fee structure, visit Corporate.Voya.com.
Compliance August 10, 2017

Study Suggests Fiduciary Rule Will Hurt Retirement Investors

Along with its comment letter to the Department of Labor, SIFMA sent study results that showed advisers have reduced access to retirement advice and products.
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More than half (53%) of financial institutions reported limiting or eliminating access to advice in retirement brokerage accounts, impacting an estimated 10.2 million accounts and $900 billion in assets under management (AUM), according to a study of a cross-section of SIFMA members, commissioned by SIFMA and performed by Deloitte & Touche.

The 21 financial institutions that participated in the study represent 43% of U.S. financial advisers and 27% of the retirement savings assets in the market. The study results were presented to the Department of Labor (DOL) along with SIFMA’s comment letter responding to a request for information (RFI) from the DOL about its new fiduciary rule.

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According to the study results, in order for investors to retain access to advice on retirement accounts from the study participants who eliminated or limited advised brokerage access, investors would have to move to a fee-based option. To accommodate clients leaving advised brokerage, 62% of study participants broadened access to advice through fee-based programs by lowering account minimums, launching new offerings, or both.

The study report notes that fee-based accounts are fiduciary accounts regulated by the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. While fee-based accounts offer a higher level of service than brokerage accounts and often include automatic rebalancing of accounts, comprehensive annual reviews, enhanced reporting to account holders, and access to third-party money managers, its fees are generally an “all-in” asset-based fee that is generally higher than the fees paid in an advised brokerage account (to compensate for the additional services). Out of the subset of study participants that provided their average advised brokerage and fee-based account fees, it was observed that annual fee-based account fees were 64 bps higher than advised brokerage fees, on average (110 bps versus 46 bps).

Sixty-three percent of study participants that limited or eliminated access to advised brokerage had retirement investors elect to move to a self-directed account. These investors lost access to personalized advice for any assets transitioned to the self-directed model.

Study participants indicated that many retirement investors moved into a self-directed brokerage account for one or several of the following reasons:

  • The retirement investor did not want to move to a fee-based account;
  • It was not in retirement investor’s best interest to move to a fee-based account;
  • The retirement investor did not meet the account minimums required for a fee-based account;
  • The retirement investor wished to maintain positions in certain asset classes which were not eligible for a fee-based account.

The study also found 19% of study participants limited or eliminated rollover advice for retirement investors, restricting advisers to an education-only capacity when discussing rollovers with retirement investors.

Nearly all (95%) study participants reduced access to or choice within the products offered to retirement investors regardless of the level of sophistication of the retirement investor. Products affected included, but were not limited to, mutual funds, annuities, structured products, fixed income, and private offerings. The study report says the limitation of products available to retirement investors potentially impacted 28.1 million accounts and $2.9 trillion in AUM of study participants.

NEXT: Cost of compliance and additional review

Cost of compliance for study participants is high. Respondents indicated that they spent approximately $595 million preparing for the initial June 9, 2017, deadline and expect to spend more than $200 million more before the end of 2017.  Multiplied industry-wide, that equates to a projected spend in excess of $4.7 billion in start-up costs relating to the rule, far-exceeding the DOL’s 2016 estimated start-up costs for broker-dealers of $2 billion to $3 billion. The ongoing costs to comply are estimated at more than $700 million annually.

In its comment letter, SIFMA also provided an explanation of why it is unnecessary to create a new private right of action to change the standard of conduct in the financial services sector; changes to the regulatory language needed to help make the rule work for retirement savers; comments regarding the exemptions; and a proposed new principles-based exemption that protects investors and provides certainty to service providers seeking to comply with the rule’s intent.

And, as did other commenters, SIFMA stressed the need to delay the January 1, 2018, applicability date, at least until the DOL can complete the comprehensive review of the rule as directed by President Donald Trump in February.

Just days after the final RFI comments were due, the DOL submitted a "notice of administrative action" to the Office of Management and Budget (OMB) indicating it will extend the transition period preceding full implementation of the expanded fiduciary rule to 2019.

“This proposed delay represents an important step in protecting Main Street Americans’ access to retirement planning advice, products and services. While the delay is significant, it is critical that the DOL uses the 18 months to coordinate with regulators, in particular the SEC, to simplify and streamline the rule,” Financial Services Institute (FSI) President and CEO Dale Brown said in a statement. “We are already seeing the effects of the rule limiting investor choice and pushing retirement savings advice out of those who need it most. We stand ready to work with the DOL, SEC and others to put in place a best interest standard that protects investors, while not denying quality, affordable financial advice to hard-working Americans.”

Professor Jamie Hopkins, Retirement Income Program co-director at the American College, said “The proposed delay was entirely expected. The delay is really more about giving the DOL time to rework the rule rather than companies really needing more time to prepare.”

Hopkins indicated there is an expectation that the private right to action through class action lawsuits will be removed from the rule, some product-specific changes will likely be built into the rule, and more and expanded exemptions from the general rule will allow many companies to keep doing business as they do today without significant change or interruption.

“The expanded fiduciary rule is likely here to stay, but its impact could be significantly reduced over the next few years if exemptions from the rule are significantly expanded. That is really what requires close attention and watching moving forward,” he said.

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