A federal district court judge has moved forward a lawsuit alleging that Wells Fargo 401(k) plan fiduciaries should have been able to obtain superior investment products at a very low cost but instead chose proprietary products for their own benefit, increasing fee revenue for the company and providing seed money to newly created Wells Fargo funds.
The lawsuit, filed last March, claims that upon the creation of the Wells Fargo/State Street Target CITs (Target Date CITs) in 2016, the committee defendants added the collective investment trusts (CITs) to the plan even though the funds had no prior performance history or track record which could demonstrate that they were prudent. Despite the lack of a track record, the committee defendants “mapped” nearly $5 billion of participant retirement savings from the plan’s previous target-date option into the Target Date CITs.
In addition, the plaintiff alleges the committee defendants used the plan’s assets to seed the Wells Fargo/Causeway International Value Fund (WF International Value Fund), as evidenced by the fact that the plan’s assets constituted more than 50% of the total assets in the fund at year-end 2014. “Without such a substantial investment from the plan, Wells Fargo’s ability to market its new, untested fund would have been greatly diminished,” the complaint states.
The lawsuit further alleges that plan fiduciaries selected and retained for the plan 17 Wells Fargo proprietary funds, many of which underperformed the benchmark that the defendants selected as an appropriate broad-based market index for each fund.
The defendants argued that the fiduciary breach allegations should be dismissed because they fail to give rise to an inference of imprudence or disloyalty. The defendants said the Target Date CITs and the Causeway fund could not have been offered to generate seed money when the Target Date CITs were designed exclusively for the plan and the investment manager of the Causeway fund was unaffiliated with Wells Fargo. They also argued that the Target Date CITs were modeled after two other substantially similar investments with extensive track records.
The defendants said the plaintiff failed to identify suitable comparators to establish that the Wells Fargo funds charged excessive fees. However, Judge Donovan W. Frank of the U.S. District Court for the District of Minnesota decided that the plaintiff’s “numerous and specific allegations are sufficient to support an inference of imprudence and disloyalty.” He added that by using the same benchmarks Wells Fargo used for comparison, the plaintiff makes “considerably more than a bare allegation that cheaper investments exist in the marketplace.”
Frank also found that the plaintiff plausibly pleaded that the defendants engaged in transactions prohibited under the Employee Retirement Income Security Act (ERISA). He said the plaintiff plausibly alleged that the defendants caused the plan to purchase property in Wells Fargo-affiliated funds from Wells Fargo and Wells Fargo Bank, which are parties-in-interest; that defendants Wells Fargo Bank and Galliard Capital Management caused the transfer of plan assets to Wells Fargo and its affiliates through fees associated with the Wells Fargo funds; and that Wells Fargo and Galliard seeded newly launched funds and directed revenue to Wells Fargo from the plan’s assets through fees.
“The court finds that [the plaintiff’s] allegations are far more than general assertions, and that accepted as true, show that defendants engaged in prohibited transactions,” Frank wrote in his opinion. “The court similarly finds that whether any prohibited transaction exemption applies to [the plaintiff’s] claims is an affirmative defense that cannot be resolved on a motion to dismiss.”
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Putnam Investments presents TDF evaluation tool; J.P. Morgan and Nationwide launch investment product; and OneDigital adds downside risk protection to adviser managed accounts solution; and more.
Putnam Investments has officially launched TargetDateVisualizer, designed to help advisers better guide plan sponsors in selecting appropriate target-date mutual funds and collective investment trusts (CITs) for inclusion in workplace savings plans, based on specific risk-tolerance preferences and investment philosophies.
The evaluation tool seeks to provide greater clarity and insight into the underlying investment glide paths of more than 100 different target-date fund (TDF) strategies, as well as the portfolio risk levels and performance characteristics of popular retirement savings vehicles.
TargetDateVisualizer helps identify preferred target-date strategies based on how aggressive or conservative an adviser would like to be in the early and late stages of participants’ working lives—and also how they define success overall. TargetDateVisualizer takes these dynamics into account and allows advisers to better distill appropriate target-date options to consider for their clients.
In discussing Putnam’s new tool for the retirement marketplace, Steven P. McKay, head of defined contribution investment only (DCIO) at Putnam, says, “The journey and outcome of a target-date strategy is determined by a wide array of factors, including the underlying glide path and investment composition. Putnam TargetDateVisualizer was built to assist advisers and their clients in making greater sense of the numerous target-date strategies available—so they can more successfully identify those products that are best aligned with the needs of their plans’ objectives.”
TargetDateVisualizer works by analyzing the glide path of every target-date strategy, both mutual funds and CITs, with at least a three-year track record, at 108 in total at present time. The tool employs a framework that asks a few key questions regarding investment philosophy and risk preferences, in both the early and late stages of a participant’s working life.
TargetDateVisualizer then frames how much equity sensitivity a target-date vintage has at points along the glide path. Subsequently, it plots the funds most aligned with the user’s risk-tolerance, resulting in a more focused set of options for consideration that can be compared head-to-head based on performance and other important risk factors. The final output provides detailed analysis that will allow advisers to document the entire review and/or selection process for their clients.
“Target-date strategies offered by different asset managers may have many features in common, but no two are exactly alike,” McKay says. “In some cases, the differences can be difficult to determine, making it hard to select strategies that are right for the goals of the plan and its participants. With its product-agnostic approach, TargetDateVisualizer should prove to be enormously helpful to advisers when embarking on the challenging, but critically important process of identifying the optimal target-date strategy for their clients.”
J.P. Morgan and Nationwide Launch Variable Annuity With Tailored Portfolios
J.P. Morgan has partnered with Nationwide to launch a new investment product that combines tailored-portfolio features with tax-efficient investment options. The investment product, a variable annuity issued by Nationwide, leverages the professional investment advice provided by J.P. Morgan.
J.P. Morgan Multi-Asset Choiceallows clients working with a J.P. Morgan adviser to build a diversified portfolio tailored to their objectives and risk tolerance, with ongoing, dynamic direction to manage today’s market conditions. In addition to expert investment advice, clients can benefit from the tax-deferral features of the annuity to minimize the current impact of taxes and maximize accumulation potential. This product was developed by J.P. Morgan Private Bank and J.P. Morgan Wealth Management exclusively for their clients.
“At J.P. Morgan, we strive to provide our clients with choices and flexibility that can be customized for their unique needs at every stage of their financial lifecycle,” says Laura Pantaleo, head of insurance and retirement solutions at J.P. Morgan. “Our new partnership with Nationwide to launch J.P. Morgan Multi-Asset Choice is the latest example of our commitment to innovative products and services that can help clients develop holistic financial plans to meet their long-term goals.”
Clients can choose from a selection of underlying tax-deferred investment options associated with a choice of seven asset allocation models—U.S. conservative, global conservative, U.S. balanced, global balanced, U.S. growth, global growth, and global aggressive growth. Tax deferral allows clients to buy or sell underlying fund options without triggering any taxable events. All principal and growth remain tax-deferred until the time of withdrawal. Unlike many other tax-deferred vehicles, there is no cap on yearly contributions.
“At a time when concerns about taxes are on the rise, and the demand for more holistic financial planning continues to grow, Nationwide is proud to join forces with market leader J.P. Morgan to launch J.P. Morgan Multi-Asset Choice, a powerful approach to tax-deferred investing,” says Craig Hawley, head of Nationwide’s annuity distribution. “This partnership draws on our decades-long track record of developing annuity solutions that can seamlessly integrate into the platforms that advisers and financial professionals use to provide their clients with a more tax-efficient approach to holistic financial planning.”
OneDigital Adds Downside Risk Protection to Adviser Managed Accounts Solution
OneDigital Investment Advisors, a registered investment adviser (RIA) focused on corporate retirement plans with more than $70 billion in assets under advisement (AUA), announced that it has allocated $70 million to Build Asset Management to be deployed in Build’s flagship Conservative Indexed Risk Control strategy.
Indexed Risk Control is a next-gen risk mitigation strategy that seeks to provide investors with downside protection while still offering upside potential. Build will serve as a sub-adviser for OneDigital’s Risk Mitigation sleeve of the firm’s Personalized Portfolios solution, OneDigital’s adviser managed accounts (AMA) solution. The Risk Mitigation sleeve of this solution seeks to protect retirement portfolios from catastrophic losses, thereby providing individuals with greater assurance of being able to retire at a planned date.
“We are excited about this solution because it is an innovative way to deliver value to participants via adviser managed accounts (AMA). Build’s investment and risk profile fits our core risk mitigation sleeve, given our focus on improving retirement for all,” says Vince Morris, president of OneDigital Retirement + Wealth. “We are committed to providing a wealth management approach within the retirement plan. We believe that every individual planning for retirement deserves a customized approach, taking into account a myriad of variables for each person. These variables could include what’s outside their retirement fund, expected Social Security payout, income-generating real estate, whether they’re the primary earner, other investments they may own, potential inheritance, etc., to reach a customized target allocation. This new strategy will potentially help us protect investors from the possibility of a market correction and is just one of the innovative ways we are building out our personalized portfolios offering.”
OneDigital examined Build’s ability to mitigate losses in severely down markets while also participating in market growth potential. Build’s flagship Conservative Indexed Risk Control strategy achieved these goals throughout the volatile markets that 2020 presented. One Digital also examined the strategy for sustainability and repeatability over time as part of its due diligence review.
“We developed our approach with a similar mindset to that of OneDigital’s Risk Mitigation sleeve, one of rethinking portfolio construction to protect on the downside while still participating in market upside opportunities. We believe the conservative side of classically constructed portfolios are ripe for an update,” says John Ruth, CEO of Build.
NTAM Introduces ESG Vector Score
Northern Trust Asset Management (NTAM) has introduced the Northern Trust ESG Vector Score, a measurement that assesses publicly traded companies in the context of financially relevant environmental, social and governance (ESG)-related criteria that could impact their operating performance.
It can be used in constructing and managing investment portfolios and stewardship activities.
NTAM’s approach marries two leading sustainability disclosure standards and frameworks—the Sustainability Accounting Standards Board (SASB)’s standards, which are industry-specific sustainability disclosure standards focused on financial materiality, and the thematic structure of the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations. The company says the design enables more purposeful and transparent integration of ESG considerations into investment processes, addressing the need for a consistent way to measure and report on ESG investments.
“What’s unique about Northern Trust’s multi-dimensional score is that we built it by applying TCFD’s anticipatory framework on governance, strategy and risk management—beyond simply climate—to all ESG risks across the SASB standards, resulting in a comprehensive assessment,” says NTAM Head of Global Product Sheri Hawkins.
NTAM designed the ESG Vector Score framework intentionally as open-architecture, allowing for the flexibility of incorporating additional best-in-class data as it becomes available. This will enable it to support multiple data sources and new industry requirements over time.
