Morgan Stanley Changes Fund Offerings

In an internal memo in early April, Morgan Stanley announced changes to its fund offerings.

According to an email the company sent PLANADVISER, it said at the time that it supports the underlying principles of the Department of Labor’s (DOL)’s fiduciary rule and believes that maintaining choice, lowering client costs, offering the highest quality products, and reducing the potential for conflicts of interest across its business are essential to delivering the highest standard of care for retirement and non-retirement clients alike. Morgan Stanley said it would make these changes regardless of whether the rule was implemented or not.

Among the changes going into effect this month, Morningstar is introducing new commission structures for equities/exchange-traded fund (ETFs), annuities and unit investment trusts (UITs) in brokerage accounts that will better align client costs with the value of the service provided. Overall, these changes will lower client costs, in some cases substantially.

The firm is also optimizing its mutual fund platform for both retirement and non-retirement accounts. This includes streamlining the selection of funds available on its platform as well as limiting the potential for conflicts of interest with its asset management partners. “Taking these steps will enable us to broaden our research coverage and enhance our ongoing due diligence on the funds remaining on our platform, helping to further ensure we are providing the highest quality investment options to our clients,” the email says.

Morgan Stanley will be reducing the number of funds on its platform by approximately 25%, eliminating funds that have underperformed, have not attained the scale to be viable on its platform, or, in some limited cases, are not aligned with its levelized fee arrangements. The firm says it will continue to offer clients a diverse array of more than 2,300 funds from the industry’s premier asset managers, enabling its advisers to create portfolios to address the full range of investment objectives. 

In addition, the firm has enhanced some disclosure and suitability standards for certain products and accounts.

NEXT:Wilshire Launches ABR Equity Index

Wilshire Launches ABR Equity Index

Wilshire Associates has expanded its Powered by Wilshire lineup with the ABR Equity Size Premium Index (ABRESP). Created by ABR Dynamic Funds and calculated by Wilshire, this index is designed to measure a strategy that targets the generally higher returns of smaller capitalization stocks in the S&P 500, while also dynamically mitigating their increased risk in a crisis and aiming to outperform the S&P 500.

The index aims to re-weight the S&P 500 by blending its market-capitalization-weighted and equal-weighted indices. Wilshire notes that the re-weighting is dynamic and is intended to reduce the drawdowns of smaller capitalization stocks.

“Wilshire Analytics is very pleased to fuel ABR Dynamic Funds’ latest Powered by Wilshire index offering,” says Robert J. Waid, managing director at Wilshire Associates. “Wilshire’s calculation and analytical expertise, combined with ABR’s committed expansion of innovative, rules-based indexes, demonstrate the value of a Powered by Wilshire approach, which can help clients bring new investment benchmark strategy ideas to market quickly.”

Taylor Lukof, CEO of ABR Dynamic Funds adds, “ABR is proud to introduce the ABR Equity Size Premium Index, our sixth offering calculated by Wilshire. The size factor is a well-known investment factor which takes advantage of the additional risk premium in smaller stocks. We believe the ABRESP Index offers an improvement over the standard factor by targeting a reduction in that additional risk through this dynamic re-weighting. The return has been higher and the maximum drawdown has been lower than a static equal-weighted index of the same components."

For more information about the ABR Equity Size Premium Index, visit http://wilshire.com/indexes/poweredbywilshire/abr-equity-size-premium-index.

NEXT: Data Science Partners Develops Downside-Risk Protection Model

Data Science Partners Develops Downside-Risk Protection Model

The New York-based financial and economic consulting firm Data Science Partners (DSP) has published research about an investing approach that aims to limit downside risk in retirement savings plans, while potentially gaining above-average returns.

Downside Risk Protection (DRP) also allows financial institutions offering this portfolio insurance vehicle to create a differentiated service designed to increase the likelihood of accumulation, retention and growth of customers’ retirement assets, the firm says.

Data Science Partners adds, “The idea for DRP was created because the majority of today’s retirement accounts—401(k)s, IRAs and other self-directed plans—are highly susceptible to major downward moves in markets. Unlike pension plans, which provide steady retirement income but are rapidly disappearing as a retirement savings plan option, self-directed plans leave retirees exposed to the risk of outliving their assets. Individuals face the risk of a self-directed plan’s uncertain income stream during retirement.”

Financial analysis found that the likelihood of individuals outliving their assets throughout a retirement period of 45 years drops from nearly 15% to 4% with DRP, the firm reports. 

DSP describes the model as comparable to an insurance policy in which investors would pay a premium to insure them from incurring large losses in their retirement accounts. In an all-equity portfolio, investor losses are capped at a maximum 15% on an annual basis in the years that the retirement accounts sustain losses. But in the years when the account posts a gain, the account holder gives up 10% of the gain to the financial institution offering DRP for the account. DSP says financial institutions can use DRP with any equities or fixed-income portfolio, given an appropriate downside floor and upside payment depending on the asset mix. 

“As more Americans are living longer, they face the increased risk of outliving their retirement income,” says Data Science Partners Chief Executive Alexander Rinaudo. “Most of the widely-used retirement investment vehicles, 401(k)s, IRAs and other self-directed plans, offer individuals little if any protection from severe market downturns—such as the Great Recession of 2008 which wiped out trillions of dollars in Americans’ retirement savings. Those self-directed retirement plans expose individuals to the heightened risk of not being able to enjoy the retirement lifestyle that they had pinned their hopes on during their income-generating years.”

A copy of the published research on Downside Risk Protection can be obtained at http://www.capco.com/insights/capco-institute/journal-45-transformation/downside-risk-protection-of-retirement-assets-12.

NEXT:Hartford Funds Releases Low Volatility Equity ETFs 

Hartford Funds Releases Low Volatility Equity ETFs

Hartford Funds has launched two low-volatility, multifactor exchange-traded funds (ETFs). The Hartford Multifactor Low Volatility US Equity ETF, and Hartford Multifactor Low Volatility International Equity ETF are designed to deliver market-like equity returns while reducing portfolio volatility to help investors achieve their long-term financial goals.

The Hartford Multifactor Low Volatility US Equity ETF aims to deliver investment results that correspond with the total return performance of an index tracking exchange-traded U.S. equity securities, before fees and expenses.

The Hartford Multifactor Low Volatility International Equity ETF seeks to provide investment results that correspond to the total return performance of an index tracking companies located in both developed and emerging markets, before fees and expenses.

Both funds are designed to balance risk across sectors. Hartford Funds says they comprise securities primarily exhibiting low volatility characteristics, while maintaining positive exposure to other potential return-enhancing factors. Both also seek to positively address many of the unintended risks found in traditional capitalization-weighted and single-factor ETFs. Both multifactor ETFs aim to offer full equity market return potential with less volatility over a complete market cycle.

The Hartford Multifactor Low Volatility US Equity ETF will carry an expense ratio of .29%, while the Hartford Multifactor Low Volatility International Equity ETF will carry an expense ratio of .39%.

“These strategies arrive at a time when market volatility is top-of-mind for investors,” says Darek Wojnar, head of ETFs at Hartford Funds. “They were designed to reduce volatility for investors pursuing long-term growth potential while introducing positive exposure to other potentially return-enhancing factors such as value, momentum, quality and size.”