Products July 7, 2016

Investment Product and Service Roundup

John Hancock Investments enacts expense reductions in TDF suite; Defined Contribution Real Estate Council publishes investing checklist for plans; Morningstar introduces new global risk model; Global Retirement Partners teams with Invesco Ltd. to provide quarterly stable value comparison reports; and more.
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Expense Reductions in John Hancock Investments TDF Suite

John Hancock Investments announced “a sweeping package of expense reductions” aimed at providing cost savings to investors in its suite of target-date Retirement Living Portfolios, as well as in four other mutual funds.

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Andrew Arnott, president and CEO of John Hancock Investments, says the reductions will further ensure the firm’s funds are cost-effective for investors. “That is an important facet of our goal of maximizing the value we provide our mutual fund shareholders,” he adds.

The expense reductions and new breakpoint schedule cover the following funds:

  • John Hancock Retirement Living Portfolios – 9 bps reduction on all share classes across the suite.
  • John Hancock Enduring Assets Fund – 30 bps reduction on all share classes.
  • John Hancock Investment Grade Bond Fund – 8 bps reduction on all share classes.
  • John Hancock Strategic Income Opportunities Fund – Additional breakpoints added to the fund’s expense schedule to help shareholders benefit from lower costs as the fund grows.
  • John Hancock Value Equity Fund – 9 basis point reduction on all share classes.

Additional details of these new expense reductions and fee schedules can be found in the funds’ and portfolios’ latest prospectuses, the firm says, adding that the latest round of reductions mark the firm’s fifth set of expense cuts in the past four years—affecting more than 30 funds.

Additional information may be found at www.johnhancock.com.

NEXT: DCREC Publishes Investing Checklist for Plans

DCREC Publishes Investing Checklist for Plans

The Defined Contribution Real Estate Council (DCREC) has published a checklist for use by defined contribution (DC) plan sponsors and consultants considering the addition of private real estate as an investment option in their plans.

DCREC describes the checklist as an “evaluation tool created to help plan sponsors and their partners in evaluating private real estate options that could be incorporated into their plan’s overall investment structure.” The checklist incorporates a wide range of recommended questions on topics such as daily valuation, liquidity, investment strategy, product structure and investor eligibility, as well as the operational considerations involved in implementing private real estate strategies on existing record-keeping platforms. 

“Plan sponsors and their consultants continue to seek diversified portfolio options for their participants,” says Jackie Hawkey, who co-chairs DCREC’s Best Practices Committee. “Interest is growing in allocating to private real estate for uncorrelated diversification, often within customized target-date funds or as part of a multi-asset class portfolio. The purpose of this checklist is to give market participants a standard set of questions to ask product providers when considering adding the asset class. This will make it easier to assess and compare offerings to determine the best fit for a particular plan.”

Additionally, DCREC released a research paper on the “Ten Key Principles Recommended for Daily Valuation of Private Real Estate Investments.” DCREC says the publication is a guide to understanding best practices in valuation covers topics such as incorporating third-party appraisals, establishing an objective daily valuation process, recognizing the impact of material events, and using currently accepted methods for daily valuation.

“Daily valuation and liquidity are seen as two of the biggest areas of focus for DC sponsors who want to add private real estate as an investment option in their plans,” Hawkey concludes. “Together, our checklist and guide provide an excellent starting point for anyone hoping to learn more about how they can incorporate this important asset class into a DC platform.”

More information on both resources can be found be at www.dcrec.org.

NEXT: Morningstar Introduces New Global Risk Model

Morningstar Introduces New Global Risk Model

New global risk management models from Morningstar Inc. are designed to help investors with deeper analysis of stocks and equity portfolio characteristics.

The firm’s firm Global Risk Model takes into account 36 factors across style, sector, region, and currency characteristics to help investors understand an investment's factor exposures and to forecast the future return distribution of individual stocks and equity portfolios. The company plans to eventually expand the risk model to additional asset classes, it says.

Morningstar's Global Risk Model has 36 different factors that help decompose the sources of return and risk for a stock or a portfolio. Six of the 36 factors are based on Morningstar's proprietary ratings, including Quantitative Fair Value Estimate; Morningstar Quantitative Economic Moat Rating; Quantitative Uncertainty Rating; Quantitative Financial Health; Ownership Risk; and Ownership Popularity. A list of all 36 factors in Morningstar's Global Risk Model is available online here.

Warren Miller, head of asset management software for Morningstar, explains the model evaluates more than 40,000 stocks and 10,000 equity fund portfolios in Morningstar's database and then builds a comprehensive forecast of future returns for various time horizons based on all 36 factor exposures. In addition, the Global Risk Model can assess an equity portion of a client's multi-asset portfolio. Investors can screen individual stocks or equity funds or make comparisons based on any of the factors. Morningstar updates the factor exposures and forecasts daily.

NEXT: Folio Institutional Adds 31 Morningstar Managed Products

Folio Institutional Adds 31 Morningstar Managed Products

Folio Institutional announced the addition of 31 Morningstar Managed Portfolios ETF and mutual fund models to its Model Manager Exchange, known as MMX.

Folio provides MMX, a network of third-party investment models, to registered investment advisers (RIAs) who seek “more efficient, cost-effective asset management solutions,” the firm explains.

“Today, RIAs demand services that streamline their business, reduce costs and offer possible solutions to fiduciary duty rules. Model Manager Exchange helps make this possible," says Greg Vigrass, firm president. “We are excited about the addition of Morningstar Managed Portfolios to MMX. This is one of the many ways we seek to contribute to an adviser's business growth, innovation and client service.”

The managed portfolios are generally designed to be part of a long-term investing plans and are built with investors' specific needs in mind, the firm explains. Morningstar's models are built to meet a range of investment strategies, time horizons and risk profiles, including the following:

  • Five mutual fund-based asset allocation portfolios designed for tax-deferred accounts;
  • Five mutual fund-based asset allocation portfolios designed for tax-sensitive accounts;
  • Five mutual fund-and-ETF-based asset allocation portfolios designed for tax-deferred accounts;
  • Five mutual fund-and-ETF-based asset allocation portfolios designed for tax-sensitive accounts;
  • Five ETF-based asset allocation portfolios;
  • Four retirement income portfolios;
  • One absolute return portfolio; and
  • One multi-asset high income portfolio.

More information on the MMX expansion is available by contacting Folio Institutional. 

NEXT: Global Retirement Partners Teams with Invesco Ltd. on Stable Value Analysis 

Global Retirement Partners Teams with Invesco on Stable Value Analysis

Global Retirement Partners (GRP) has partnered with Invesco Ltd. to provide quarterly stable value comparison reports using Invesco’s SVAnalyzer, “a comprehensive tool that simplifies the comparison process across a range of stable value characteristics and shows the adviser/consultant how to compare product criteria that may have otherwise been overlooked.”

Going forward the investment team at GRP will collect the data from 10 to 11 different stable value providers on a quarterly basis, according to the firms. The team will then be able to run customized comparisons consisting of the providers requested by GRP advisers.

“The GRP team can help advisers with scoring output, or the advisers can implement their own scoring within the tool,” the firms explain. “Currently our advisers are using the tool to evaluate provider’s wrap characteristics, as well as consistency of credit quality and market to book value ratios.”

Another benefit to advisers is that the SVAnalyzer delivers an easy to use report. “This report coupled with the backend data aggregation and GRP report generation enables advisers to offer consultative analysis and provide a subjective ranking across 10 important evaluation criteria, which also can be weight adjusted based on level of importance,” adds Daren Alcantar, investment analyst at Global Retirement Partners. “As we enter into a rising interest rate environment it is important to understand that stable value funds could shift from operating in a positive market value to a negative market value. This makes it a prudent time to examine the characteristics of stable value providers.”

Given the current interest rate cycle, advisers and plan sponsors should have an understanding that a market value deficit is not indicative of a poorly managed or unhealthy stable value fund, the firms conclude. “With proper investment management, a stable value fund can continue to thrive, even in a sharply rising rate environment, meeting both the capital preservation and stable/competitive return objectives.”

More information is available at www.grpaa.com. 

Compliance July 6, 2016

Report Reveals Progress on Recommendations to the SEC

The SEC is bumping up staff for investment adviser examinations, but actions on a fiduciary rule and TDF disclosures are still pending.
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The Securities and Exchange Commission’s (SEC’s) Officer of Investor Advocate report about objectives for Fiscal Year 2017 discussed Investor Advocate Committee (IAC) recommendations to the SEC and the SEC’s response to those recommendations.

In 2013, the IAC recommended that the SEC request legislation from Congress that would authorize the commission to impose user fees on SEC-registered investment advisers to provide a scalable source of funding for more frequent compliance examinations of advisers. The IAC asserted that the examination cycle for SEC-registered investment advisers was “simply inadequate to detect or credibly deter fraud.”                    

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Though it has never made a statement requesting user fees, the SEC says it has made funding for increased coverage of investment adviser exams a top priority every year since FY 2015. Each year, the commission has requested funding to hire additional examiners in the SEC Office of Compliance Inspections and Examinations (OCIE): the FY 2015 Budget Request called for funding to support an increase of 316 OCIE examiner positions; the FY 2016 Budget Request, an increase of 225 OCIE examiners; and the FY 2017 Budget Request, an increase of 127 OCIE examiners.

In addition to adding new examiners when new resources become available, OCIE is in the process of converting some staff from its broker/dealer examination program to the investment adviser/investment company program, with the goal of increasing staff for the latter by roughly 20%.

NEXT: Broker/Dealer Fiduciary Rule

Also in 2013, the IAC adopted a set of recommendations encouraging the SEC to establish a fiduciary duty for broker/dealers when they provide personalized investment advice to retail investors.

The IAC suggested that to accomplish this objective, the SEC should narrow the exclusion for broker/dealers within the definition of an “investment adviser” under the Investment Advisers Act of 1940. As an alternative, the committee recommended the adoption of a rule under Section 913 of the Dodd-Frank Act to require broker/dealers to act in the best interests of their retail customers when providing personalized investment advice, with sufficient flexibility to permit certain sale-related conflicts of interest that are fully disclosed and appropriately managed.

In addition, the IAC recommended the adoption of a uniform, plain English disclosure document to be provided to customers and potential customers of broker/dealers and investment advisers which would disclose information about the nature of services offered, fees and compensation, potential conflicts of interest, and the disciplinary record of the broker/dealer or investment adviser.

In March 2015, SEC Chair Mary Jo White announced her belief that broker/dealers and investment advisers should be subject to a uniform fiduciary standard of conduct when providing personalized securities advice to retail investors. In Congressional testimony, she stated that she would soon begin discussing the issue with fellow commissioners, and that she had asked SEC staff to develop rulemaking recommendations for commission consideration. Further SEC action is pending.

NEXT: TDF Disclosures

The IAC adopted recommendations for the SEC to revise its proposed rule regarding target-date retirement fund names and marketing.

The package of five IAC recommendations pertained to a 2010 SEC proposal that would, among other things, require marketing materials for target-date funds (TDFs) to include a table, chart, or graph depicting the fund’s asset allocation over time (i.e., an asset allocation glide path). As either a replacement for or supplement to the SEC’s proposed asset allocation glide path illustration, the IAC recommended that the commission develop a glide path illustration that would be based on a measure of fund risk. To promote comparability between funds, the IAC recommended the adoption of standard methodologies to be used in glide path illustrations.

In addition, the IAC urged the SEC to require clearer disclosure about the risk of loss, the cumulative impact of fees, and the assumptions used to design and manage the funds.

On April 3, 2014, the SEC reopened the comment period on the proposed rule in order to seek public comment on the IAC’s recommendations to adopt a risk-based glide path illustration and the methodology to be used for measuring risk. The comment period closed June 9, 2014, and a final rule has not yet been adopted.

The report on objectives is here.

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