Products August 8, 2019

Investment Product and Service Launches

John Hancock creates model portfolios managed by Manulife; Northern Trust builds portfolio analytics tool; American Century to launch new suite of investment solutions; and more.

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Art by Subin Yang

John Hancock Creates Model Portfolios Managed by Manulife

John Hancock Investment Management has created multimanager model portfolios managed by its affiliated asset manager, Manulife Investment Management, available on Envestnet’s Fund Strategist (FSP) platform.

The models leverage the investment expertise of Manulife’s global asset allocation team combined with the due diligence from John Hancock’s global manager research group to construct these portfolios. They are designed to fit investor objectives and risk tolerances while helping advisers and their clients by providing a diversified asset allocation portfolio supported by John Hancock’s multimanager model.

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“Envestnet serves advisers in nearly every channel and provides a tremendous resource to enable advisers to deliver diversified portfolios to their clients,” says Jeff Duckworth, head of Intermediary Distribution at John Hancock Investment Management. “And, as one of the only multimanagers on Envestnet’s platform, the John Hancock model portfolios are a differentiated offering that combines our best-in-class managers with the expertise of our asset allocation team, making these capabilities even more accessible to advisers.”

Two suites of portfolios are currently available on the Envestnet platform and are differentiated by underlying holdings. These are the John Hancock Multimanager Model Portfolios; made up of primarily actively managed holdings and the John Hancock Active/Passive Model Portfolios; a hybrid suite of both active mutual funds and primarily passive exchange-traded funds (ETFs). Each of the suites offer five risk tolerances levels: aggressive, growth, balanced, moderate and conservative. The availability of the models to an adviser is contingent on specific broker-dealer approval. 

“We know that both advisers and their clients are seeking more consistent and long-term portfolio returns, irrespective of risk tolerance. Introducing the John Hancock Multimanager Model portfolios on Envestnet’s platform is an important part of our commitment to delivering on these objectives in the model space,” says Bruce Picard, lead portfolio manager for the John Hancock Multimanager Model portfolios.

Northern Trust Builds Portfolio Analytics Tool

Northern Trust has launched a new investment analytics tool, providing institutional investors with insights when tracking and analyzing risk and performance across portfolios.

This latest enhancement from Northern Trust’s Investment Risk and Analytical Services (IRAS) group introduces Performance RADAR, a new proprietary reporting tool offering a contemporary user experience for accessing performance, attribution, contributions and ex-post risk results online across individual and aggregated portfolios.

“Performance RADAR allows asset owners and asset managers to amalgamate and synthesize large amounts of complex data though flexible visualization tools,” says Serge Boccassini, product lead – Investment Accounting and Analytic Solutions at Northern Trust. “Our clients can find information quickly using powerful graphics and intuitively compare performance results. The result is that we provide clients with greater insights into their analytics—faster and more efficiently than ever before.” 

American Century to Launch New Suite of Investment Solutions

American Century Investments has hired three senior portfolio managers for the investment team supporting Avantis Investors, a new suite of broadly diversified, tax-efficient and low-cost investment solutions slated to launch later this year. Ted Randall, Mitchell Firestein and Daniel Ong bring 45 years of combined investment management experience to their new roles.   

Working with the firm’s Chief Investment Officer Eduardo Repetto Ph.D., Randall, Firestein and Ong will manage a range of investment solutions across market capitalizations and geographies. In late June, the firm filed a registration statement with the Securities and Exchange Commission to offer five new equity strategies. Available in exchange traded fund (ETF) and mutual fund vehicles, the new strategies are expected to rely on a proprietary investment approach based on market prices and designed to capture higher expected returns.

Randall has prior experience as a portfolio manager and vice president at Dimensional Fund Advisors (DFA), where he managed U.S., international developed and emerging market portfolios. During his 17-year tenure at DFA, Randall also led the research group’s trading support efforts and its management of security data. In this role, he designed portfolio management and trading applications to optimize the rebalancing and management of portfolios. Randall earned his master’s degree in business administration from the UCLA Anderson School of Management and holds a bachelor’s degree in business administration with a concentration in finance from the University of Southern California.

Prior to joining Avantis Investors, Firestein was a senior portfolio manager and vice president at DFA, where he led a team of investment professionals that managed approximately $40 billion in emerging market equity portfolios. He was responsible for strategy and portfolio oversight, implementation, and performance analysis. Firestein started his investment career at DFA in 2005 as a trading assistant supporting the international equity desk after graduating from Tulane University with a bachelor’s degree of science in management and finance. 

Ong also served as a senior portfolio manager and vice president at DFA for 14 years. Ong’s responsibilities spanned across managing international developed and emerging markets equity strategies, leading the emerging markets desk, and engaging with clients. Prior to that, he was an account manager at Metropolitan West Asset Management and a structure analyst at Pacific Investment Management Company. Ong is a CFA charterholder and earned a bachelor’s degree in economics from the University of California and an earned his master’s degree in finance and accounting from the University of Chicago Booth School of Business.

Transamerica Lowers Multiple Investment Fund Fees

Transamerica has reduced its fees for multiple investment funds, effective August 1 and August 2.

Fees were reduced by up to 13 basis points for certain classes of the following investments, representing more than $11.4 billion in assets as of June 30: the Transamerica Short-Term Bond; Transamerica Large Cap Value; Transamerica Intermediate Muni; Transamerica Unconstrained Bond; Transamerica U.S. Growth (effective August 2); Transamerica WMC U.S. Growth VP (effective August 2); and Transamerica Aegon U.S. Government Securities VP.

“At Transamerica, we strive to provide strong investment returns and competitive fees. Today’s announcement illustrates that commitment to our mutual fund, variable annuity, and retirement plan customers,” says Marijn Smit, head of Transamerica Asset Management, Inc.

Transamerica Asset Management, Inc. advises 69 mutual funds, 58 underlying funds for its variable annuity and variable life products, and five DeltaShares exchange-traded funds (ETFs).

Sun Life Financial Announces First Sustainability Bond Issuance

Sun Life Financial Inc. will issue $750 million dollars’ worth of principal amount in Canada, of Series 2019-1 Subordinated Unsecured 2.38% Fixed/Floating Debentures. The offering is expected to close on August 13.

The Debentures will represent Sun Life’s inaugural sustainability bond in Canada and marks the first issuance of a sustainability bond by a life insurance company globally.

In March 2019, Sun Life published its Sustainability Bond Framework, outlining its criteria for the bonds. Distinguishing them from green bonds, Sun Life’s bond and its Sustainability Bond Framework include criteria for both green and social assets. Potentially eligible social investments focus on access to essential services, facilities and equipment that contribute to the long-term health of communities while delivering excess returns to investors, such as infrastructure investments for hospitals or childcare centers. Sun Life’s Sustainability Bond Framework and an independent second party opinion by Sustainalytics on the framework’s alignment with the International Capital Markets Association’s Sustainability Bond Guidelines are available publically on Sun Life’s Investor Relations website. 

“We’re proud to be the first life insurance company globally to issue a sustainability bond. At Sun Life, our purpose is to help our clients achieve lifetime financial security and live healthier lives. This issuance demonstrates our commitment to embed sustainability into our business while contributing positively to society and advancing technologies that enable a healthier future,” says Melissa Kennedy, executive vice president, chief legal officer and executive sponsor of Sustainability, Sun Life. “The financial market plays a key role in the transition to sustainable practices and we’re pleased to broaden the opportunities for sustainable investments in Canada.”

Mesirow Financial Issues U.S. Small Cap Suitability Vehicle

Mesirow Financial has released its Small Cap Value Sustainability Fund. This vehicle capitalizes on the firm’s U.S. Small Cap sustainable investment strategy while addressing the increasing desire of institutional, corporate and individual investors to emphasize responsible investing within well-diversified portfolios.

“With this strategy, we link environmental, social and governance [ESG] factors with our fundamental assessment of macro, sector and company-specific trends,” notes Kathryn Vorisek, senior managing director and head of Equity Management at Mesirow Financial. “We believe that actively incorporating well-defined ESG factors can offer attractive investment potential—and a lower overall portfolio risk profile—while driving positive environmental and societal outcomes.”

“Social responsibility has been a core value of Mesirow Financial since its founding in 1937,” remarks Dominick Mondi, president and CEO of Mesirow Financial. “For decades, we have served as a catalyst for positive change in our communities, and so it is a natural extension to incorporate environmentally and socially sound principles as we design investment solutions for our clients.”

Going forward, the firm says it will continue to seek positive impact through active engagement with companies and further integration of ESG elements into a growing line-up of investment strategies and solutions that are good for society and good for investors.

Compliance August 8, 2019

New York Trial Court Endorses Fiduciary Standard for Insurance Sales

New York’s expanded “best interest” standard took effect on August 1st for annuity contracts and will take effect February 1, 2020, for life insurance policies. In a new decision, the New York Supreme Court calls the expansion “a rational and reasonable movement towards consumer protection.”

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A ruling issued by the New York State Supreme Court strongly sides with the state’s Department of Financial Services’ (DFS) effort to expand the state’s fiduciary rules to cover the sale and service of annuities and life insurance products.

Notably, the Supreme Court of the State of New York is the trial-level court of general jurisdiction in the New York State Unified Court System, rather than the state’s top court. 

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The ruling addresses two distinct applications for a declaratory judgement by the state’s high court, one submitted by the Independent Insurance Agents and Brokers of New York and the other by the National Association of Insurance and Financial Advisers – New York State. The applications ask the Supreme Court to halt the expansion of the fiduciary duty in New York such that it now applies to annuity sales and will soon apply to insurance brokerage business.

The text of the decision includes a substantial recounting of arguments made both for and against the fiduciary rule expansion. However, in drawing its conclusions, the New York Supreme Court unequivocally sides with the Department of Financial Services.

Neither Arbitrary Nor Capricious

“The Court finds that the Amendment is a proper exercise of the powers granted to the DFS Superintendent, that it is not an attempt by DFS to improperly legislate, and that is nether arbitrary or capricious,” the decision states.

By way of context, back in July 2018, New York’s Department of Financial Services approved an amendment to its insurance regulations to impose a “best interest” standard on the sale of life insurance and annuity contracts. The amendment took effect on August 1, 2019, for annuity contracts and will take effect February 1, 2020, for life insurance policies.

Financial services industry analysts and attorneys have called this development a “sea change,” at least for advisers and brokers operating in New York with some interest in selling or servicing insurance products. They note how the regulation not only heightens the standard of care owed by the sellers of life insurance products, but how it also vastly expanded the breadth of the products covered from annuities to all life insurance products, including term-life insurance.

Among other arguments, challengers to the fiduciary rule expansion suggested the approach taken by DFS violated the State Administrative Procedure Act (SAPA). On this point, the Supreme Court is skeptical and sides entirely with DFS.

“The record establishes that—albeit the petitioners attempt to argue otherwise—DFS has complied with SAPA in adopting the amendment,” the decision states. “The Amendment, initially proposed in December 2017, went through two rounds of changes before it was promulgated, and in response to all the same issues raised in the petitions. DFS issued a Regulatory Impact Statement (RIS), a Regulatory Flexibility Analysis (RFA) and a statement in lieu of a Job Impact Statement (JIS), receiving 36 comments.”

No SAPA Violation

Turning to the petitioners’ argument that SAPA was violated because DFS did not provide a valid cost analysis, the Court finds that the efforts of DFS in this regard “are amply sufficient.”

“The petitioners have provided no specifics to back up their own cost estimates, and most of the petitioners’ statements regarding the cost increases on insurers and the industry are vague and inconclusive,” the decision concludes. “DFS explains that the costs associated with the implementation of the Amendment are deminimus, because it is a principles-based approach allowing producer and insurer flexibility, and that this flexibility makes it impossible to estimate the costs of compliance.”

According to the New York Supreme Court, DFS asserts, and the record supports, that the Amendment does not impose any particular system, forms, or procedures for meeting the requirements of the Amendment. It further provides that compliance procedures can be minimal, and may be as simple as briefly documenting why a recommendation is being made.

“Costs that consumers incur when they are sold products that do not fit their needs—wasted premiums, loss of needed benefits—far outweigh any costs to the insurer,” the decision states. “Revenues lost from recommending products which are not in the consumer’s best interests is not a viable insurer ‘cost’ for the purposes of a reasonable SAPA analysis.”

The Supreme Court turns next to the petitioners’ arguments that the Amendment is “arbitrary, capricious, irrational, and an abuse of discretion on the part of the respondents.”

“The Amendment, which is directed at providing guidelines for trustworthy and competent producer practices, and preventing self-dealing by producers at the consumer’s expenses, falls squarely within the provisions of Financial Services Law and the Insurance Law,” the decision concludes. “Against a backdrop of legitimate concerns for consumers, the burgeoning market of increasingly complex insurance and annuity products, and the rather remarkable lapse rate the market is experiencing, the Amendment is interstitial—consistent with underlying statutory purposes—and reflects a rational and reasonable movement towards consumer protection.”

Read the full text of the decision here.

*Editor’s note: This article was updated after publication to reflect the fact that the Supreme Court of the State of New York is in fact the trial-level court of general jurisdiction in the New York State Unified Court System, rather than the state’s top court. 

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