Products December 20, 2018

Investment Product and Service Launches

Vanguard reveals fund merge; Northern Trust creates reporting tool for hedge fund trades; and Lively removes HSA investment fees.

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Art by Jackson Epstein

Art by Jackson Epstein

Vanguard Reveals Fund Merge

Vanguard has announced plans to merge the $15.1 billion Vanguard Morgan Growth Fund into the $10.2 billion Vanguard U.S. Growth Fund. Following the merger, scheduled to be completed in early 2019, the fund will retain the U.S. Growth Fund name and continue to invest primarily in large-capitalization stocks of U.S. companies considered to have above-average earnings growth potential and reasonable stock prices in comparison with expected earnings.

Four current advisers of the U.S. Growth Fund will be retained (Wellington Management Company LLP, Jackson Square Partners LLC, Jennison Associates LLC, and Baillie Gifford Overseas Ltd.), and Vanguard Quantitative Equity Group will be added to the advisory team.

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Given the similarities in objectives, strategies, portfolios, and performance between the funds, Vanguard determined that the merger results in a stronger combination of investment advisers and in greater efficiencies in the administration of the combined U.S. Growth Fund. Following the merger, the expense ratios for the fund’s Investor and Admiral Shares are expected to be 0.38% and 0.28%, respectively.

Vanguard is also realigning the multi-manager approach teams of three funds. The $5.4 billion Vanguard Global Equity Fund will be advised by two of the current advisers, Baillie Gifford and Marathon Asset Management LLP. Acadian Asset Management LLC will no longer manage a portion of the fund. The team for the $4.2 billion Vanguard Mid-Cap Growth Fund will include current adviser RS Investments Management Co. LLC, along with two new advisers to the fund: Frontier Capital Management LLC and Wellington. The $664 million Growth Portfolio of Vanguard Variable Insurance Fund will be managed by two of the current advisers: Jackson Square and Wellington.

Concurrent with these changes, William Blair Investment Management, LLC will no longer serve as an adviser for the U.S. Growth Fund, the Mid-Cap Growth Fund, and the Growth Portfolio of Vanguard Variable Insurance Fund.

The merger and the advisory changes are a result of Vanguard’s ongoing and comprehensive review of its global fund and exchange-trade fund (ETF) lineup. Matthew Brancato, who heads Vanguard’s product group, said: “We employ a rigorous evaluation process in overseeing our funds and advisers to ensure we provide sound, enduring offerings that meet the long-term needs of our clients. We have a long track record of product leadership and making changes that we believe are in the best interests of our clients, including merging funds, changing advisers, modifying mandates, and closing and liquidating funds.”

Northern Trust Creates Reporting Tool for Hedge Fund Trades

Northern Trust Hedge Fund Services (NTHFS) has launched Rec Dashboard, a reporting tool built to improve efficiency in account reconciliation. The dashboard is said to provide a comprehensive, real-time view of breaks and reconciliations in trade activity between NTHFS clients and other institutions.

As fund administrator, NTHFS reconciles client books and records with external custodians, futures clearing members, prime brokers and swap counterparties. Rec Dashboard users can create custom defined data views, monitor reconciliation completion and integrate break resolution into their own processes via the dashboard.

“As the importance of transparency continues to grow for hedge funds, we have enhanced our services to provide clients with more flexible views into data,” says Jeff Boyd, head of Northern Trust Hedge Fund Services, North America. “Timeliness and accuracy of information is critical. By consolidating all breaks into an interactive graphical user interface, Rec Dashboard provides real transparency into the process of verifying trade activity, positions and balances, helping clients to more effectively manage breaks and measure risk.”

Lively Removes HSA Investment Fees

Lively, Inc. announced the elimination of all fees to enable investments in its health savings accounts (HSAs) starting on January 1.

“Traditional HSA providers charge their customers hidden fees that can exceed thousands of dollars in lost savings,” says Alex Cyriac, CEO and co-founder of Lively. “Combined with rising yearly health care costs, this means consumers are losing money on both sides making it difficult to not only afford health care costs today, but also the $280,000 of expected health care expenses in retirement.”

Morningstar’s 2018 HSA Landscape report found that the HSA industry’s inconsistent disclosure and “frequent, significant changes to fees and investment lineups, create a burden for account holders looking to select a well-managed plan.” According to Lively, with the company’s zero-fee offering, these issues and concerns are removed for HSA holders.

“After personally experiencing the heavy impact of saving for health care costs, we created Lively to put more savings into consumers’ pockets and end the traditional nickel and diming by HSA providers,” says Shobin Uralil, COO and co-founder of Lively. “Becoming 100% fee-free for individuals and families takes our vision to the next level by removing costs to the consumer.”

Client Service December 20, 2018

Mercer Lays Out Goals for DC Plans for 2019

They are centered around three key themes: 1) Secure your foundation, 2) Achieve greater prosperity and 3) Inspire confidence.

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Mercer has issued a white paper laying out goals for defined contribution (DC) plan sponsors for 2019. The priorities are centered around three key themes: 1) Secure your foundation, 2) Achieve greater prosperity and 3) Inspire confidence.

By “secure your foundation,” Mercer means that it is imperative for plans to have a strong governance framework in place. By “achieve greater prosperity,” Mercer urges sponsors to improve participant outcomes. And by “inspire confidence,” Mercer is calling on plans to address individual needs.

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As for the first theme, Mercer says that plans can start by monitoring plan fees. The consulting firm says that sponsors need to ensure that the fees that they are paying to vendors are market competitive and have been recently reviewed. Sponsors also need to check to see if there are lower-cost funds available and to determine whether their method of allocating fees (per participant versus as a percentage of assets) is appropriate. Finally, sponsors need to ensure that they are disclosing fees clearly to participants.

Next, Mercer calls on sponsors to prepare for audits by the Department of Labor’s Employee Benefit Security Administration, starting by making the effort to find missing participants. If funds have been put on a watch list, has the sponsor followed up with a review and/or action?

Mercer reminds sponsors that governance matters, particularly as lawsuits against retirement plans are still on the rise. If the sponsor does not have the expertise or resources to effectively carry out these responsibilities, they should outsource them by hiring an Employee Retirement Income Security Act (ERISA) attorney or retaining an outsourced chief investment officer (OCIO) 3(38) fiduciary. “Whatever the intended approach, sponsors should not delay carrying out responsibilities that could result in litigation,” Mercer says.

As for the second theme of helping participants achieve greater prosperity, Mercer reminds sponsors that a sound plan means doing more than examining fees. In some cases, actively managed funds, which are more expensive, can be appropriate for a plan, as can alternatives. “Personalized asset allocation comes at a price but may be beneficial if asset allocation is the driving force behind variability of returns,” Mercer says.

Mercer calls on sponsors to increase diversification through multi-manager funds provided through a white label structure. Sponsors should also consider managed accounts, Mercer says. Today’s offerings can automatically input information about participants into their management, removing the issue of employee engagement. “As participants’ financial pictures become more complex, managed accounts can become increasingly attractive,” Mercer says.

The consulting firm also asks sponsors to consider offering products, solutions and tools to help participants as the near and enter retirement. Mercer also asks sponsors to consider offering environmental, social and governance (ESG) funds.

As far as inspiring confidence is concerned, Mercer says sponsors need to look at the needs of various demographic groups and consider offering other savings solutions besides the 401(k) plan, such as assistance paying down student loans and health savings accounts (HSAs). Financial wellness programs are also important, Mercer says.

Mercer’s report can be downloaded here.

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