The Office of Management and Budget
(OMB) confirmed receipt of the Department of Labor’s (DOL) hard-fought
fiduciary regulation, which now stands in final form.
To be
clear, investment and retirement plan industry professionals will have
to wait a little longer to actually see the final fiduciary rule, and
compare it to the proposed regulation language published last year.
There could be substantial changes included in the rule language currently being looked at by OMB,
but given the fact that comment periods on the regulations ended fairly
recently, it is unclear whether major changes could or would have been
made in that time.
Interestingly, the news that OMB is reviewing a final fiduciary rule comes despite Labor Secretary Thomas Perez’s comments just this week
that implied reports that the conflict of interest rule would be sent
to OMB soon were incorrect. Perez had said the DOL was still “neck deep”
in the process of reviewing the significant number of comments
submitted in last fall’s comment period and “hopes to reach a conclusion
in the coming months,” which would indicate some changes to the rulemaking language are certainly possible.
In
any case, the news that a final fiduciary rule has been formed and
submitted to OMB is certain to irk many in the investment and retirement
plan industries. In just the last few weeks several groups again voiced
concerned with where the proposal is heading, what’s in it and how fast it’s moving. One group wants to defund the DOL initiative via Congress,
while another group is suggesting the DOL be required to re-propose the
rule with another short comment period next year. That move would
significantly change the timing of the issuance and effective date of
the rule and give interested parties an opportunity to see how the DOL
may be resolving concerns raised during the first comment period.
Traditionally
the OMB has 60 to 90 days to review regulations of this nature and to
make public the final rule language, but given the limited time the
current administration has in office and the high-profile nature of the
rule, OMB may also use its discretion for an expedited review.
S&P Dow Jones Indices adds retirement income indexes; Northern Trust Asset Management reveals its next generation of target-date funds; and Beaumont Capital reveals a defensive TDF alternative.
S&P Dow Jones Indices has launched the S&P STRIDE
Index series, “aimed at blending the process of wealth creation with the need to
mitigate uncertainty of in-retirement income.”
The
STRIDE name is short for “Shift
to Retirement Income and Decumulation,” the firm explains. The index
series is a multi-asset class solution “designed to transition from
growth assets to a
hedged stream of inflation-adjusted retirement income based on target
retirement dates.”
Dimensional Fund
Advisors worked collaboratively with S&P DJI to develop the glide
path, inflation hedging, and duration hedging techniques used in these indices.
Each S&P STRIDE index consists of an allocation to a group of indices
covering global equity, global fixed income and U.S. Treasury
Inflation-Protected Securities (TIPS). Allocations are determined by five-year
increments of target-date years to cover a full life cycle of accumulation, defined
as working years, and decumulation, defined as retirement years.
“As life expectancy increases and plan participants depend
more on their retirement plan balances to generate income, the development of
benchmarks addressing these trends are key to serve as the basis for investment
solutions,” suggests Philip Murphy,
vice president of North American equity indices at S&P Dow Jones Indices.
In a research paper released alongside the new index series,
the firm argues the goal for many people saving for retirement is essentially to
maintain a specific standard of living. For these individuals, one relevant
risk to manage is the uncertainty of how much retirement income their balances
can afford, the firm explains.
“This uncertainty is driven by changes in interest rates and
inflation,” adds David Booth,
chairman and co-CEO at Dimensional Fund Advisors. “The S&P STRIDE
Index series represent a significant step forward in the design of target date
indices, because they manage relevant risks facing participants saving for
retirement. I believe these indices provide plan sponsors, consultants, and
financial advisers with a better benchmark to understand how well prepared plan
participants are to maintain their desired standard of living in retirement.”
Northern Trust Asset Management launched the Life
Engineered Funds, described as a new generation of target-date retirement
funds.
“The funds help defined contribution (DC) plan sponsors by
providing participants with a comprehensive solution that takes the guesswork
out of investing and builds a more secure retirement,” according to the firm.
The products build on Northern Trust’s asset allocation
framework, funds combining the expertise of Northern Trust’s factor-based
Engineered Equity strategies, and PIMCO’s active fixed-income and
inflation-sensitive strategies.
“Northern Trust has re-engineered the target-date fund,” suggests
Stephen Potter, president of Northern Trust Asset Management. “Life Engineered
Funds leverage our unique factor-based investment approach and our demonstrated
expertise in asset allocation. This new series reflects our continued
commitment to the retirement marketplace by providing an efficient and
effective solution for DC participants to build for their life in retirement.”
Rick Fulford, head of retirement at PIMCO, says the firms
built the new TDF product line in the belief that the next generation of target-date
funds should seek to provide sufficient, reliable income. He explains the Life
Engineered Funds are available to DC retirement plan sponsors via 12 collective
trust funds, “designed for participants who are retired or are planning to
retire between now and 2060.” Each fund includes a combination of three distinct
strategies—growth, income and inflation sensitive—according to the firms.
“We have seen considerable adoption of our Engineered Equity
factor-based strategies by global institutional investors over the past year,
due to an increased focus on managing volatility and taking compensated risks,”
says Northern Trust Chief Investment Officer Bob Browne. “Academic studies,
including our own, have identified factors in the equity markets that have been
proven to outperform over time. Strategically combining exposures to those factors
provides portfolios the right volatility at the right time, over a certain time
horizon.”
Beaumont Capital Management, a provider of quantitative
ETF-based investment strategies, launched a defensively minded
alternative to target-date funds (TDFs) in the form of risk-managed collective trust
funds.
Beaumont says the new product approach “addresses the need
for a more versatile investment solution that seeks to benefit in growing
markets and can react appropriately and decisively in periods of market
volatility.” In addition, according to Beaumont, the products are “designed to
address the current Department of Labor and industry concerns with other
target-date funds.”
The age-based portfolios are designed to meet the varied
needs across a workforce from aging Baby Boomers on the verge of retirement to
Millennials just starting their first job, the firm says. Each portfolio mirrors
the design of a target-date fund, “but the overall strategic allocations are
adjusted over longer periods the way most investment advisers would manage a
portfolio, rather than small annual adjustments.”
Additionally, Beaumont launched new U.S. Sector Rotation and
Decathlon Growth Tactics strategies as collective investment funds, “which can
easily be included and accessed in virtually any retirement plan.”
“The premise of our new retirement products is to offer
portfolios that are low cost, have active management, are defensively oriented
and meet the needs of investors regardless of where they are in their life
stage,” explains Dave Haviland, managing partner and portfolio manager of
Beaumont Capital Management.
To learn more about Beaumont’s new retirement products,
contact Bob Peatman at bpeatman@investbcm.com.