District Court Sides With Challenges to DOL’s Fiduciary Standards
A judge struck down parts of Prohibited Transaction Exemption 2020-02 that allowed the Department of Labor to treat certain relationships involving IRAs as evidence of a fiduciary role under ERISA.
A federal judge this week ruled partially in favor of a coalition of financial professionals and organizations challenging the U.S. Department of Labor’s interpretation of fiduciary standards under the Employee Retirement Income Security Act.
In Federation of Americans for Consumer Choice Inc. et al. v. United States Department of Labor et al., U.S. District Judge Ed Kinkeade, in the Northern District of Texas, issued an order on July 9 that accepted the findings and recommendations of a U.S. magistrate judge, who concluded in 2023 that portions of the DOL’s guidance under Prohibited Transaction Exemption 2020-02 exceeded the agency’s authority and were arbitrary and capricious.
The plaintiffs—comprised of independent insurance agents, financial planners and industry organizations—argued that the DOL’s reinterpretation improperly expanded the definition of who qualifies as an “investment advice fiduciary” under Title I of ERISA, particularly regarding advice on rolling funds into individual retirement accounts from other retirement plans.
Following the magistrate judge’s recommendation, Kinkeade struck down parts of PTE 2020-02 that allowed the Department of Labor to treat certain relationships involving IRAs as evidence of a fiduciary role under ERISA. Specifically, the judge rejected the DOL’s attempt to consider a single rollover as the start of an ongoing advisory relationship, the assumption of possible future advice to IRAs and the view that a continuous advisory relationship covering both a workplace retirement plan and an IRA meets the “regular basis” requirement for fiduciary status. Kinkeade found these interpretations went beyond the DOL’s legal authority and were unreasonably applied.
While Kinkeade denied the DOL’s motion to dismiss the case for lack of jurisdiction, he also granted in part and denied in part various motions for summary judgment.
The district court’s ruling partially invalidates the DOL’s attempt to regulate one-time rollover advice as fiduciary investment guidance, potentially narrowing the department’s oversight of financial professionals who offer IRA rollover services.
The U.S. 5th Circuit Court of Appeals, which vacated the DOL’s previous fiduciary rule in its 2018 decision in Chamber of Commerce v. DOL, in April granted the DOL 60 days to consider its stance on the latest version of the rule, called the Retirement Security Rule, which had been scheduled to take effect in September 2024. The DOL, which published the latest rule during the Biden administration, began pursuing the appeal. Following the change in presidential administration, the DOL has not said if it will continue the appeal. The 5th Circuit hears appeals from district courts in Louisiana, Mississippi and Texas and would be the next court to hear any appeals to Kinkeade’s decision.
A DOL spokesperson was not immediately available for comment on the status of the rule.
One attorney argued that more of the by upholding much of the DOL’s preamble in the 2020 Prohibited Transaction Exemption the circuit court’s decision raises a host of issues.
“I do not speak for FACC, obviously, but I would be extremely surprised if FACC did not appeal, and frankly, I would be very surprised if FACC did not win its appeal,” says Kent Mason, a Washington, D.C.-based partner at Davis & Harman LLP, which was not involved in the legal action. “The 2020 DOL preamble was just a transparent effort to turn salespeople into fiduciaries, which the 5th Circuit has found invalid. Clearly, neither the magistrate nor the district judge understood the issues. I read the magistrate’s report, and it is just devoid of logic on key points.”
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Schwab grows institutional no-transaction fee fund offering; Interactive Brokers debuts IBKR InvestMentor; SS&C Technologies adds investment management services to Black Diamond Wealth Platform; and more.
Schwab Grows Institutional No-Transaction-Fee Fund Offering for Independent Advisers
Schwab Advisor Services expanded its institutional no-transaction-fee mutual fund capabilities for independent registered investment advisers. Currently, more than 1,200 funds from 25 asset managers are integrated into the platform. The new lineup will almost double its size to approximately 2,000 funds across 58 asset managers.
The offering now includes AB, Akre, Alger, AMG, American Beacon, Artisan, Baron, Buffalo, Carillon, Cliffwater, Federated, Gabelli, Harding Loevner, Hartford, Jensen, John Hancock, Lazard, Manning & Napier, Matthews, Natixis/Loomis, NYLI, Oakmark, Parnassus, Performance Trust, PGIM, Royce, Segall Bryant, Thornburg, Victory, Virtus, Voya, Wasatch and William Blair.
Interactive Brokers debuted IBKR InvestMentor, a mobile micro-learning app developed by its wholly owned subsidiary, Interactive Academy LLC. The app, currently available on iOS, offers free, accessible educational content through short, interactive lessons that build foundational knowledge in economics and investing.
According to the firm, IBKR InvestMentor is intended to simplify complex financial topics for beginning and aspiring investors. Lessons, which are self-paced, cover core areas such as stocks, bonds, futures, options and investment strategies. Users can take interactive quizzes to check their knowledge.
“Succeeding in business and investing is a matter of common sense. You do not have to go to school for years if you have the dedication to learn as you go, on the job, on your own. Many successful people, including myself, never graduated from college and never studied business in school,” said Thomas Peterffy, founder and chairman of Interactive Brokers, in a statement. “With IBKR InvestMentor, you assimilate knowledge by microdosing at your own pace. It is free. No matter where you are, if you have a phone, you have no excuse not to learn and succeed.”
SS&C Technologies Adds Investment Management Services to Black Diamond Wealth Platform
SS&C Technologies Holdings Inc. announced Thursday the addition of Black Diamond Investment Management Services to the SS&C Black Diamond Wealth Platform.
The new suite of integrated capabilities can assist wealth management firms with portfolio management, trading and client engagement. A turnkey solution allows advisers to outsource trading, rebalancing and portfolio oversight directly from the Black Diamond platform. A model marketplace provides access to a selection of portfolio models such as those from SS&C ALPS Advisors and third-party managers.
The firm also highlights the Investment Management Services’ automated and intuitive tools for building investment proposals, as well as tailored house-hold level rebalancing and tax-aware optimization to align portfolios with clients’ unique risk tolerances, goals and more.
Acuity Launches RFP Pulse to Help Asset Managers With RFPs, DDQs
Acuity Knowledge Partners launched RFP Pulse, a managed digital solution designed to help asset and wealth managers respond to requests for proposals and due diligence questionnaires.
The product combines generative artificial intelligence, semantic search and a structured content repository with Acquity’s domain expertise and service layer. A “format-agnostic solution,” according to the announcement, RFP Pulse automates and accelerates document ingestion, content retrieval, draft generation and formatting across Excel, Word and digital DDQ tools.
Already live with some clients, RFP Pulse has so far resulted in efficiency gains ranging from 25 to 30%, according to the announcement, including a 70% reduction in time to retrieve responses and accuracy exceeding 80% in initial drafts.
Prudential Adds ActiveIncome to UMA Platform
Prudential Financial Inc. announced the launch of ActiveIncome, an insurance overlay option available through Dimensional Fund Advisors’ unified managed accounts platform.
According to Prudential, ActiveIncome expands access to retirement security by offering a contingent deferred annuity option for managed accounts. The product supports all available investments options on the Dimension UMA platform, including exchange-traded funds, mutual funds, separately managed accounts and model strategies.
“With 11,200 Americans turning 65 every day, ActiveIncome is designed to create better retirement outcomes by thoughtfully addressing longevity risk,” said Dylan Tyson, Prudential’s president of recruitment strategies and head of its global retirement center of excellence, in a statement. “As Americans are planning for longer—potentially 30 or more years—and healthier retirement years, innovative approaches are required.”
Vanguard Launches 3 ETFs Focused on U.S. Government Bonds
Vanguard has launched the Vanguard Government Securities Active ETF (VGT), an actively managed ETF; and two index ETFs, Vanguard Total Treasury ETF (VTG) and Vanguard Total Inflation-Protected Securities ETF (VTP); all managed by the company’s fixed-income group.
VGVT has an expense ratio of 0.10% and seeks to outperform the Treasury market while maintaining diversification. VGT offers a low-cost comprehensive index solution for broad exposure to the Treasury market and simplified all-curve exposure at a ratio of 0.03%. VTP has a ratio of 0.05% and serves as a tool to protect portfolios from inflation risk, offering a broader investment universe with a longer duration profile.
BlackRock Acquires ElmTree Funds
BlackRock announced Monday an agreement to acquire ElmTree Funds, a net-lease real estate investment firm with $7.3 billion in assets under management, as of March 31.
ElmTree will be integrated into Private Financing Solutions, a new platform created through BlackRock’s combination with HPS Investment Partners. The ElmTree acquisition will allow PFS to scale its real estate offering, while expanding into new markets as an owner-operator. BlackRock expects ElmTree will help accelerate the growth of the PFS platform and deliver clients risk-adjusted returns with favorable structures.
“Structural shifts in the real estate sector are creating new opportunities for private capital,” said Scott Kapnick, CEO of HPS Investment Partners and chairman of the Private Financing Solutions executive office, in a statement. “The combination of a premier triple-net investor with our leading private financing solutions platform will position us to capture these opportunities for our clients.”
Horizon Announces 2 More ETFs
Horizon announced the launch of two actively managed exchange-traded funds, concluding a three-week debut of seven ETFs in total.
The firm launched the Horizon Nasdaq 100 Defined Risk ETF and Horizon Digital Frontier ETF, with ticker symbols QGRD and YNOT, respectively.
According to Horizon, QGRD seeks to provide exposure to the Nasdaq 100 Index while managing downside risk through a disciplined options overlay. The ETF aims to provide capital appreciation and capital preservation. YNOT aims to achieve long-term capital appreciation by investing mainly in equity securities of companies operating in the digital and technology sectors.
ISS STOXX Launches Sovereign Climate Impact Report
ISS STOXX released its new Sovereign Climate Impact Report. The offering enables investors to understand, measure, report and act on climate transition-related risks and impacts of their sovereign portfolios. ISS STOXX owns PLANADVISER.
The report aligns sovereign and sub-sovereign exposures to the latest Partnership for Carbon Accounting Financials methodology and guidance. It also helps investors fulfill internal and external reporting climate-related disclosure requirements, including International Sustainability Standards Board IFRS S1 and the Task Force on Climate-related Financial Disclosures.
“As a leading provider of climate research, data and analytics, and a trusted partner to the global institutional investor community, we are pleased to launch the Sovereign Climate Impact Report, the latest new offering in our comprehensive suite of climate solutions, with further innovations planned in 2025,” said Till Jung, head of ISS STOXX’s sustainability business, in a statement.
WisdomTree Launches GeoAlpha Opportunities Fund
WisdomTree Inc. announced Tuesday the launch of its WisdomTree GeoAlpha Opportunities Fund, an exchange-traded fund with an expense ratio of 0.58%.
“The geopolitical landscape is evolving at an unprecedented pace,” said Sam Rines, a macro strategist at WisdomTree, in a statement. “GEOA is built to help investors navigate this complexity by targeting companies that not only endure global uncertainty but capitalize on emerging strategic and economic realignments.”
GEOA is passively managed and seeks to track the price and yield performance—before fees and expenses—of the WisdomTree GeoAlpha Opportunities Index. The index identifies companies and regions that demonstrate resilience and adaptability to global uncertainties, such as evolving defense and trade dynamics, macroeconomic policy shifts and emerging technologies.
