The Markets January 11, 2016

Endowment Index Declines 3% in 2015

The index was established as a benchmarking tool for investors in globally-diversified, multi-asset portfolios that include alternative investments, and is the basis for a collective trust used in DC plans.
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The Endowment Index, calculated by Nasdaq OMX, declined 3.17% (on a total return basis) for the 12 months ended December 31, 2015.

This compares to a 1.38% gain for the S&P 500 during the same period. The index was established as a benchmarking tool for investors in globally-diversified, multi-asset portfolios that include alternative investments. It is comprised of three major asset class building blocks: global equity, global fixed income, and alternatives which includes hedge funds, private equity and real assets. It was the Endowment Index’s first calendar year decline since 2011.                               

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Eight of the index’s 19 investable components provided a positive return during 2015, and the gains were minimal. Only domestic real estate, international fixed income and private equity were able to gain more than 1% for the year. Of the 11 components that declined in 2015, all but emerging market equity were in the alternatives portion of the index and three quarters of the index decline was attributed to just four asset classes: metals and mining, emerging market equity, oil and gas, and hedge funds.

The Endowment Multi Asset ETF Allocation, a collective investment trust available for use in defined contribution (DC) plans and managed by ETF Model Solutions, employs a passive investment approach based upon the Endowment Index.

Products January 11, 2016

Tools, Training to Address DOL Fiduciary Definition

A DALBAR training program anticipates the best interest contract (BIC) exemption.
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It’s not yet a done deal, but DALBAR expects the best interest contract (BIC) exemption in the proposed fiduciary definition by the Department of Labor (DOL) to soon become a reality. As the industry waits to see if and when the definition will be implemented, compensation models are an area of intense scrutiny.

The financial services market research and evaluation firm is rolling out new tools and a self-paced program for advisers to take, to learn what they must do to remain compliant in the face of new regulation if they continue providing advice. Aimed at advisers who work with individual retirement accounts (IRAs) and Employee Retirement Income Security Act (ERISA) plans, the course helps them see best ways to implement the BIC exemption; provides guidance tools for the transition to a new compensation model; examines ways to maintain and increase compensation under the BIC exemption; as well as how to minimize time and cost of compliance. 

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Background and an overview of the implications of the BIC exemption are discussed in two free briefs: “BICE Requirements Summary” and “Creating a Successful Best Interest Contract Practice.” The requirements summary lays out the choices that financial advisers must make to comply, remain competitive and profitable in the BICE environment. The practice brief highlights the changes that will be required to meet the obligations and implications of a best interest contract, including: business models, small accounts, business development, marketing communications, risk management and compliance.

“As the regulatory changes under consideration by the Labor Department and IRS [Internal Revenue Service] get closer to reality the discussion must shift to how to operate successfully in the new environment,” says Cory Clark, head of research and due diligence at DALBAR.

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