Products February 2, 2023

Investment Product and Service Launches

AllianzIM launches 2 buffered ETFs that hedge S&P 500 exposure; Capital Group releases 12 active-passive model portfolios; eMoney Advisor releases tax planning for advisers to show Roth conversions; and more.

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AllianzIM Launches 2 Buffered ETFs That Hedge S&P 500 Exposure

Allianz Investment Management LLC announced two U.S. large cap buffered exchange-traded funds to offer investment professionals and investors risk-mitigating strategies amid market uncertainty and recession fears.

The ETF suite is designed to provide a downside buffer of 10% or 20% against market drops, while allowing investors the opportunity to participate in the upside potential of the SPDR S&P 500 ETF Trust up to a stated cap, the Minneapolis-based firm said in the announcement.

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“Our buffered ETFs make it easier for investors sitting on cash to get back into the market without jumping headfirst into the deep end,” Johan Grahn, head ETF market strategist at AllianzIM, said in a statement.

The funds are offered at an expense ratio of 74 basis points.

Capital Group Releases 12 Active-Passive Model Portfolios

Capital Group, parent company of American Funds, has launched 12 active-passive model portfolios featuring Capital Group as the strategist.

The models are made up of American Funds’ actively managed mutual funds and passively managed exchange-traded funds from Vanguard, Schwab and BlackRock, according to the announcement. As the strategist, Capital Group will select the passive ETFs in each model and manage the allocations.

“As the needs of financial professionals and investors continue to evolve, so has the way we think about delivering our investment solutions to them,” Kris Spazafumo, head of portfolio solutions and services at Capital Group, said in a statement. “We know that financial professionals are increasingly creating active-passive portfolios for their clients because they want both a low-cost, tax-efficient portfolio with the potential for excess returns.”

According to Capital Group, the model portfolios business is a strategic focus of the firm and has more than tripled in assets under management since 2018. The firm now offers 31 model portfolios.

Morningstar Debuts Personalized Investment Planning Tool

Morningstar Inc. announced the launch of a new investment planning tool available on its adviser workstation and designed to help advisers create comprehensive, personalized investment plan recommendations to clients.

The Investment Planning Experience brings together Morningstar’s independent investment data, research and ratings with investment-planning capabilities. The tool is designed for advisers to optimize and propose an investment plan catered to a client’s personal preferences.

“Advisers are increasingly facing pressure to differentiate themselves because clients today expect personalized investment recommendations,” Vimal Vel, Morningstar’s head of enterprise advisor software, said in a statement. “As regulatory changes require all firms to demonstrate their advisers are acting on investor’s best interests, this robust and customizable solution clearly establishes an understanding of client preferences, whilst meeting all requirements.”

eMoney Advisor Releases Tax Planning for Advisers to Show Roth Conversions

eMoney Advisor LLC, a technology solutions and services firm, announced the launch of features that allow financial advisers to show their clients the impact Roth conversions and other tax strategies have on their financial plans.

The Tax Bracket Report provides advisers with the ability to demonstrate the impact of strategies like Roth conversions, according to the Radnor, Pennsylvania-based firm. The report overlays a client’s tax bracket floor with their annual income tax base and the taxable portion of any Roth conversion. It also includes further insight into what remains in the federal marginal bracket for each year, identifying new opportunities and topics for conversation.

The Automated Bracket-Based Roth Conversion accessible tool quickly converts assets until reaching the breakpoint between marginal tax brackets, according to the firm.

“These new capabilities easily enable advisers to have dynamic tax planning conversations with their clients, which are then brought to life in the Decision Center,” Josh Belfiore, advisory product manager at eMoney, said in a statement. “These conversations are especially top-of-mind for advisors as they navigate the SECURE 2.0 Act changes.”

Morgan Stanley Investment Management Launches ESG-Backed ETF Platform

Morgan Stanley Investment Management, a division of Morgan Stanley, announced an exchange-traded-fund platform with the listing of six ETFs that use Calvert Research and Management’s approach to responsible investing.

The ETF suite offers investors access to four indexed environmental, social and governance strategies and two active ESG strategies across a range of asset classes, according to New York-based MSIM.

“These new ETFs will resonate strongly with investors who seek competitive investment results while promoting positive change and supporting companies that are leaders in improving long-term shareholder value and societal outcomes,” Ted Eliopoulos, CEO and president of Maryland-based Calvert, said in a statement. Calvert is also a division of Morgan Stanley.

The fund focus areas include investing in companies that are advancing diversity, equity and inclusion, as well as those addressing global environment or societal challenges, according to the announcement.

Compliance February 2, 2023

Federal Magistrate Judge Recommends Dismissal of ERISA Case Against Dish Network

The plaintiffs have 14 days to resubmit and restate their claim in the excessive-fee case.

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A federal magistrate judge on Tuesday recommended the dismissal of a lawsuit brought under the Employee Retirement Income Security Act against the Dish Network Corporation for its use of actively managed Fidelity Freedom Funds.

The recommendation by a magistrate judge—in this case, dismissal for failure to state a claim—is not binding until a U.S. district judge reviews and approves it, but recommendations of this kind are normally approved.

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The lawsuit was brought in January in the U.S. District Court for the District of Colorado by four former employees of Dish represented by the Miller Shah law firm, one day after the same firm reached a settlement with Coca-Cola for challenging the same suite of target-date funds.

The Coca-Cola Company, which settled in its case, was represented by Alston and Bird, while Dish, for which dismissal is recommended, was represented by the Groom Law Group, Chartered. The same TDF suite was challenged in both cases.

The complaint against Dish alleges that the fees charged by the actively managed Fidelity Freedom Fund TDF suite were more than those paid by similar defined contribution plans and that they were not adequately monitored by Dish. It also alleges that the Fidelity TDFs underperformed comparable TDFs in the same time period.

According to the initial complaint, the Dish plan had 18,808 participants with $841 million in assets, as of December 31, 2020.

In April 2022, Dish moved to dismiss the case for lack of standing and failure to state a claim. Dish alleged that the plaintiffs were not personally invested in the TDFs, therefore were not injured by them, and thus had no standing. Dish also argued the plaintiffs’ complaint does not specify flaws in Dish’s fiduciary processes, nor prove that lower recordkeeping fees were available to Dish during the class period.

Magistrate Judge Scott Varholak recommended on Tuesday that the Dish case be dismissed without prejudice and that the plaintiffs should be given 14 days to amend and resubmit their complaint. That recommendation will be reviewed by a district judge.

Varholak accepted that the plaintiffs had standing and agreed with Dish that they failed to state a legally actionable claim.

According to the magistrate judge’s recommendation, the plaintiffs have standing because they allege a flawed process which damaged all of their investment portfolios. Also, even though each plaintiff did not invest in every TDF vintage available, they all invested in at least one and have the right to challenge the suite itself. Additionally, the inclusion of potentially imprudent menu options deprives the plaintiffs of prudent options, damaging them by way of opportunity cost, even if none had invested in the Fidelity suite.

When Varholak considered failure to state a claim, he recommended a dismissal. Varholak wrote that the plaintiffs must identify the fees that the plan in fact paid and compare them to the fees charged in similar plans. He also explained that actively managed TDFs are not, per se, imprudent, and the plaintiffs must identify process flaws in their complaint.

The magistrate judge also addressed the plaintiffs’ claim that 11 of the 32 underlying investment vehicles lacked a five-year track record and are therefore imprudent because they are untested. Varholak wrote that relatively new investment vehicles are also not, per se, imprudent, and the plaintiffs must still identify process flaws that resulted in the selection of imprudent investments.

 “Thus, considering the totality of Plaintiffs’ allegations, the Court finds that Plaintiffs have failed to state an imprudence claim,” Varholak’s recommendation stated. “Plaintiffs make no direct allegations regarding Defendants’ process for selecting and retaining Plan options. Plaintiffs have further failed to adequately compare the Active Suite to a meaningful benchmark or otherwise allow a court to reasonably infer that the retention of the Active Suite was the result of an imprudent monitoring process. Accordingly, the Court RECOMMENDS that Plaintiffs’ imprudence claim regarding the Active Suite be DISMISSED.”

The Miller Shah law firm did not return a request for comment.

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