Compliance September 28, 2015

PANC 2015: The Regulatory Environment

Many SEC actions will impact retirement plan advisers.
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With the presence of Andrea Ottomanelli Magovern, acting branch chief of the Division of Investment Management at the U.S. Securities and Exchange Commission (SEC), the regulatory discussion at the PLANADVISER National Conference focused on SEC actions.

Ottomanelli Magovern gave attendees an overview of money market fund reforms adopted by the SEC in 2014. The rule amendments require providers to establish a floating net asset value (NAV) for institutional prime money market funds, which will allow the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets. The reform also provides non-government retail money market funds with new tools, known as liquidity fees and redemption gates, to address potential runs on fund assets. 

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According to Ottomanelli Magovern, the establishment of a floating NAV addresses first mover advantage. During the financial crisis of 2008, investors had an incentive to get out of money market funds at the first sign of trouble because those who didn’t were left to make up the difference between the $1.00 per share published price of the funds and the shadow price, she explained. “We found that most of these first movers were institutional funds, so we want to steer the reform in that direction,” she said. Ottomanelli Magovern added that a floating NAV also provides risk transparency; investors can see there is risk with a share value that goes up and down.

David N. Levine, a principal at Groom Law Group, Chartered, told attendees institutional investors, including retirement plans, are starting to discuss the implications of the money market fund reform, and many times advisers are leading the discussions. They are helping plan sponsors review their current money market funds and determine whether they need to move to government funds. 

Ottomanelli Magovern said compliance with the news rules is expected by October 14, 2016. “About two-thirds of retirement plans have money market funds,” she said. “We want to get the word out because we’re not sure plan sponsors are focused on it.”

NEXT: SEC enforcement priorities

Ottomanelli Magovern told conference attendees other priorities for the SEC’s investment and enforcement divisions include getting better disclosures from registrants; looking into liquidity risk management—how derivatives and funds invested in derivatives are managed; and looking into transition and succession planning for advisers.

One notable SEC action is the ReTIRE initiative. Levine said “the SEC marches to its own drum, but there are a lot of similarities” between this initiative and the Department of Labor’s (DOL) proposed fiduciary rule. But, the ReTIRE initiative looks at things like, “what is a reasonable basis for adviser recommendations, and who is responsible for oversight?” it also looks into deceptive marketing practices, according to Levine.

Speaking of the DOL fiduciary rule, both Levine and Jamie Fleckner, a partner at Goodwin Procter LLP, told conference attendees they should expect the DOL to move forward on it. “They may back off on some disclosures, but they will keep the focus on unconflicted advice,” he said, adding that there may, for example, be some relief concerning rollovers for those advisers affiliated with product providers. “But, not everyone will like the changes.”

Fleckner said advisers will adapt to the new environment. He noted that there was a similar rule in the UK, and many advisers moved to using a flat fee, which made obtaining advice more expensive for smaller plans. But, “there are a lot of small plans out there,” Fleckner said. “They will attempt to continue to get advice, and the DOL will support some of those attempts.”

Levine thinks someone will come up with a model that works, perhaps a combination of robo and live advice. But, he also thinks the industry will see advisers focus more on wellness education, “with some advice for the right price thrown in.”

Deals & People September 28, 2015

PANC 2015: “Industry Insights”

Pensionmark and CAPTRUST executives talk about their strategic partnership.
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Pensionmark Financial Group and CAPTRUST Financial Advisers formed a strategic partnership in March. At the 2015 PLANADVISER National Conference in Orlando, Florida, Pensionmark CEO Troy Hammond and CAPTRUST CEO Fielding Miller talked about what prompted the deal and how it is benefiting advisers.

Pensionmark has an adviser support program to help advisers respond to inflection points, Hammond said. Much like other advisers, Pensionmark hit an inflection point last year and wanted to expand. “We spent a lot of time last year evaluating how to take Pensionmark to the next level, to evolve. CAPTRUST and Pensionsmark have been very friendly competitors. We share clients as well as best practices,” he said. He then just picked up the phone to speak with CAPTRUST and started talking about the potential of working together.

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For its part, CAPTRUST “had a strategic interest in an affiliate because we expect the bull market for retirement plan advisers to continue for some time,” Miller said. “A lot of advisers will need a strong retirement back office, so we decided to partner with Pensionmark, allowing them to take a 49% stake. We have both an affiliate and a partnership model.”

NEXT: The various roles Pensionmark and CAPTRUST play

CAPTRUST is the broker/dealer, and Pensionmark supplies the back-office support and registered investment adviser (RIA) intellectual capital, Hammond said. “I’ve been in this business for 25 years and have had four partners. This is the first time I’ve had a partner with whom Pensionmark is philosophically and morally aligned. CAPTRUST has some great resources, which has allowed us to roll out the Smart Lifecycle custom target-date fund since forming the partnership.”

Miller added: “Troy and his team run the business. We are a strategic partner that brings capital and business acumen.”

As to whether the advisers the two entities serve are different or the same, Hammond and Fielding said that in both cases, they are retirement specialists looking to grow their business. Asked whether the advisers can be affiliates or acquired, Miller said it depends on the adviser preference. However, given the strong CAPTRUST and Pensionmark brands, “advisers to independent firms can benefit from affiliating under one brand,” he said.

NEXT: Upcoming trends in the retirement plan industry

As to the trends advisers will face in the coming years, Miller said that requests for proposals (RFPs) for advisers have become standard. “That will rationalize the industry,” as it will make it clear to plan sponsors which advisers only dabble in retirement plans, he said. Fee transparency will also bring increased competition from other advisers. “Our fees are out there for public consumption, so there is a lot of pressure for us to bring more value to the table.”

Thirdly, as investment menus increasingly use passive investment and target-date funds (TDFs), it will be a challenge for advisers to prove their value, he said. Fourth, he foresees more demand for advice and wellness programs. If advisers aren’t already offering this, they will be at a disadvantage, he said. Lastly, regulatory pressures are rapidly increasing. “The price of poker is going up. It will be much more expensive” to do business, Miller said.

In addition, advisers must think about succession planning, Hammond said. “Otherwise, your practice will dissipate,” he said. By partnering with CAPTRUST, Pensionmark solved this problem for itself, he said.

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