Investment Product and Service Launches

MSCI new framework to evaluate decarbonization targets and Vanguard announces upcoming changes for dividend funds.

Art by Jackson Epstein

Art by Jackson Epstein

MSCI New Framework to Evaluate Decarbonization Targets

MSCI revealed its new planned framework to assess a company’s decarbonization targets against its net-zero goal. 

The MSCI Target Scorecard will allow institutional investors to make direct comparisons between a company’s climate commitments and ascertain which company has a realistic decarbonization target. This framework development occurs during a period of increase in shareholder engagement by institutional investors and climate activists. 

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The MSCI Target Scorecard will evaluate a company’s climate goals across three key dimensions:

Comprehensiveness – examining how much of the total emissions of a company are covered by the published targets.  MSCI analysis looks at the emission scopes that are covered by the targets, and the activities and geographies covered by the target. Additionally, the comprehensiveness determines whether solely carbon dioxide equivalent (CO2e) emissions are considered, or all greenhouse gas emissions.

Ambition – analyzing how much and how quickly a target aims to reduce emissions. MSCI will evaluate the information on emissions reductions and timeline to draw a company-level trajectory of future emissions. This provides investors with an overview of how a company’s trajectory may deviate at the key horizons of 2030 and 2050 from the path required to achieve net-zero.

Feasibility – assessing how feasible a given target is and how much confidence investors can have in its achievement. MSCI will assess a company’s track record by comparing its expired original target emissions and the reported emissions in the target year. Similarly, the progress made by companies meeting their ongoing targets by benchmarking companies’ latest emissions against the target’s projected trajectory will also be assessed. This will inform the level of confidence that a company will achieve its targets.

MSCI will launch a public consultation in June 2021 with corporate issuers and investors to invite feedback and dialogue on the MSCI Target Scorecard. 

Vanguard Announces Upcoming Changes for Dividend Funds

Vanguard has announced plans to change the target benchmarks for two dividend-focused index funds in the third quarter of this year.

Vanguard Dividend Appreciation Index Fund will change its benchmark to the S&P U.S. Dividend Growers Index from the Nasdaq US Dividend Achievers Select Index. Vanguard International Dividend Appreciation Index Fund will change its benchmark to the S&P Global Ex-U.S. Dividend Growers Index from the Nasdaq International Dividend Achievers Select Index. The respective ETF Shares of these funds, VIG and VIGI, will also track the new benchmarks. 

“As part of our ongoing due diligence process, Vanguard determined that new benchmarks would best enable our Dividend Appreciation funds to perform in line with their investment objectives,” says Kaitlyn Caughlin, head of Vanguard Portfolio Review Department. “We believe S&P Dow Jones Indices’ approach to dividend indexing closely aligns with Vanguard’s views, and we are confident that S&P DJI is well-positioned to administer the indexes moving forward.” 

The underlying methodology of the S&P DJI’s benchmark includes three new features for the funds including:

Buffered yield screens intended to minimize excessive turnover. At each annual rebalance, all dividend-paying stocks in the investible universe are ranked in order of dividend yield with the highest-yielding at the top. A stock will not be eligible for first-time admission to the index if its dividend yield is in the top 25%. During subsequent rebalances, any stock already in the index may remain unless its yield is in the top 15%. 

Free-float adjustments to ensure each index will count only shares that are available to investors. The benchmarks will exclude closely held shares, such as those held by members of a company founder’s family.

A three-day rebalance window to help manage transaction costs and minimize tracking error. The periodic changes to add, remove, or rebalance the constituent stocks in each index will take place over three days instead of one day.  

Additionally, the performance benchmark for Vanguard Dividend Growth Fund will be changed to the S&P U.S. Dividend Growers Index. The fund will continue to be advised by Wellington Management Company LLP, and the benchmark change is expected to occur in the third quarter of 2021. The investment objectives, strategies, and overall portfolio management processes of the three funds will not change, and the expense ratios are expected to remain the same.

 

The Why Behind Moneta’s Self-Funded Trust Company

The leadership team at Moneta says the firm’s recent launch of its own trust company fortifies its independence and commitment to helping clients transfer their wealth from one generation to the next.

Experienced advisory industry practitioners know all about the critical role played by trust companies when it comes to servicing retirement clients’ intergenerational wealth objectives, but the job they do is not always well understood by individual investors.

As defined by Investopedia, a trust company is, at its core, a separate corporate entity owned by a bank or other financial institution, law firm, or independent partnership. Its function, as the name suggests, is to prudently manage trusts, trust funds, and estates for individuals, businesses, and other entities such as corporate sponsored retirement plans.

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In today’s defined contribution (DC) plan industry, independent investment advisers tend to rely on unrelated third parties to play the role of a trust company, but that is not universally true. Indeed, Moneta is the latest independent registered investment adviser (RIA) firm to take the step of launching its own independent trust company. Technically, the Moneta Trust is chartered pursuant to Kansas statutes as a non-depository retail trust company and regulated by the Kansas Office of the State Bank Commissioner. Moneta Trust is a wholly owned subsidiary of Moneta Holding Corp., which itself is a wholly owned subsidiary of Moneta Group LLC.

Explaining the move, Moneta CEO and Chairman Eric Kittner, says the launch of the trust company aligns with his firm’s broader commitment to fiduciary practices and independence, especially as more of the firm’s advisers are being called upon by clients to plan for and support intergenerational wealth transfers.

“Our advisers and clients have been asking for this to more efficiently pass on their net worth to the next generation,” Kittner explains. “Furthermore, we are demonstrating our commitment to deliver on their long-term needs without the influence of outside funding. Investing in your own trust company is not something a firm that plans to sell in five years does.”

In practice, creation of the Moneta Trust will enable clients to appoint a single corporate trustee for both liquid and illiquid assets held in trust. Thus, a singular trustee can oversee and help to simplify the intergenerational transfer of wealth. Kittner says this is a timely development, given the fact that wealth transfers are expected to approach $70 trillion over the next 25 years.

“The numbers are astounding in terms of the need for advice around wealth transfer from one generation to the next,” adds Moneta Partner Gene Diederich. “Because we are often in the driver’s seat with clients as they design their wealth transfer plan, we have intimate knowledge of how to execute it in a way that is best for their family, and now we can do so with the resources of Moneta Trust.”

Echoing Kittner, Diederich says the launch of the trust shows the 100% employee-owned advisory firm “is not looking to cash out to private equity or an aggregator.”

“We are demonstrating that we are a dedicated group of practitioners in this space,” Diederich says. “Sure, we may be leaving some financial chips on the table by being so committed to independence, given the extremely high multiples that other firms have earned when they have sold. Ultimately, we think our clients are well served by our desire to be independent and to not have external corporate ownership.”

For context, this development comes at a time when the broader retirement plan advisory industry is seeing record-setting merger and acquisition (M&A) activity. Many of the deals involve previously independent firms join larger financial services conglomerates which themselves may operate trust companies or have close ties to established trust companies—in addition to being able to provide ancillary benefits and insurance services and products.

As explored in a blog post published by Bob Pennington, regional director of Pendleton Square Trust Company, an RIA’s service offering can be substantially improved through the best-in-class services and collaborative approach provided by the right independent trust company.

“A resourceful and experienced independent trust company that works effectively with clients and their advisers in handling trust distributions, managing trust accounting and reporting, providing oversight of investments, and coordinating interested parties can add significant value to the wealth management services provided by an RIA,” Pennington says.

Among other factors, Pennington says the growth and success experienced over the last decade or more by independent RIAs has increased demand for reliable, effective trust services from outside providers.

“For example, financial institutions [such as brokerage wirehouses] aren’t in the habit of providing standalone trust services for their former advisers and clients,” he explains. “Enter the independent trust company.”

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