Products November 5, 2015

Investment Product and Service Launches for the Week

Dimensional Fund Advisors launches TDF solution; Morningstar acquires Total Rebalance Expert; Morgan Stanley adds CreditSights to online adviser portal; and AB reveals holistic annuity fiduciary service. 
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Dimensional Fund Advisors Launches Target-Date Solution

Dimensional Fund Advisors, a global investment management firm, announced the launch of the Dimensional Target Date Retirement Income Funds, described as “a next generation solution developed to help manage uncertainty around consumption in retirement.”

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The series of 13 funds are “carefully designed to address market, interest rate, and inflation risks leading up to and throughout retirement.”

David Booth, Dimensional chairman and co-CEO, says “defining and managing the right risks” are both critical steps when determining a retirement plan participants’ asset allocation. “A good target-date solution should balance the tradeoffs between growth investments and an appropriate risk-hedging asset,” he adds.

With these goals in mind, Booth notes the new Dimensional TDFs “are designed to manage relevant risks, in particular, interest rate and inflation risks, so investors are less exposed to the effects of random market forces. This may reduce uncertainty about how much consumption their investments will support in retirement, and enable plan sponsors, consultants, and financial advisers to use meaningful information about expected retirement consumption to help investors plan for a more successful retirement.”

The Dimensional Target Date Retirement Income Funds use asset-allocation strategies to invest in “income-growth investments,” mainly global equities and fixed income, as well as complementary “income risk management investments.” The portfolios aim to address risks with a hedging strategy based on established liability-driven investing (LDI) theory and an inflation-protected fixed income portfolio.

NEXT: Morningstar Scoops Up Total Rebalance Expert 

Morningstar, Inc. announced this week that it has entered into a definitive agreement to acquire Total Rebalance Expert (tRx), described as “an automated, tax-efficient investment portfolio rebalancing platform for financial advisers.”

Morningstar will acquire the platform from FNA, LLC and expects to complete the transaction in November 2015. Terms were not disclosed.

Sheryl Rowling, CEO of FNA and principal of independent advisory firm Rowling & Associates, created tRx in 2008, “when she couldn't find an affordable, tax-efficient, easy-to-use rebalancing system for her own practice.” Currently more than 500 financial advisers from 175 firms rely on tRx to rebalance more than $20 billion in client assets, according to Morningstar.

The tRx platform streamlines the rebalancing process for advisers and automates the complexities involved in rebalancing and managing portfolios. Advisers can use the software to more easily minimize taxes, harvest losses, and rebalance at the account or household level. They can also use the tool to show clients, in dollars and cents, how much they saved in taxes by working with the adviser.

In June 2015, Morningstar announced it was integrating the tRx rebalancing capabilities into Morningstar Office, the company's practice and portfolio management system.

“As we began to work together, both firms liked what we saw and realized that it made sense for Morningstar to acquire tRx,” Rowling said. “Morningstar has the resources to take tRx to the next level by combining it with the company's proprietary research and data.”

Rowling will continue to run her advisor practice and work for Morningstar on a part-time basis, the firm says. Morningstar plans to incorporate the tRx capability into its adviser offerings and will also continue to offer it as a standalone platform.

NEXT: Morgan Stanley Adds CreditSights to Online Portal 

Morgan Stanley Wealth Management announced that it has added CreditSights, an independent provider of global fixed-income research, to its online portal of research and strategy content for its financial advisers.

Financial advisers working with Morgan Stanley “will now have access to and can provide to clients, upon request, fundamental corporate bond research on over 900 investment grade and high yield companies across the globe, as well as corporate credit-focused market strategy and sector analysis.”

The reporting is supported by more than 70 analysts in the U.S., Europe and Asia, according to the firms, specializing in the integration of fundamental and quantitative disciplines to provide reliable credit research to institutional investors and corporations.

Kevin Lynyak, head of trading for Morgan Stanley Wealth Management Capital Markets, says the addition of CreditSights will help the firm’s financial adviser network and their clients to make “more informed decisions about corporate credit investments suited to pursuing their investment objectives within their risk profile.”

For more information about CreditSights visit www.creditsights.com or call 212-340-3840.

NEXT: AB Reveals Holistic Annuity Fiduciary Service 

AB, formerly known as AllianceBernstein, has launched a new fiduciary service that “will assume fiduciary responsibility for annuity selection in connection with its Lifetime Income Strategy service.”

As the party responsible for annuity selection, AB will perform these duties as an investment manager under Section 3(38) of the Employee Retirement Income Security Act (ERISA), the firm notes. AB's new service is “intended to alleviate the burden and risk associated with a plan fiduciary's responsibility as it relates to the inclusion of guaranteed income options so that plan sponsors can feel more confident in offering lifetime income solutions to employees.”

Richard Davies, senior managing director for defined contribution at AB, says it is very clear that policymakers and regulators want to encourage plan sponsor adoption of guaranteed income solutions, so it makes sense to roll out this new service now. “With our new fiduciary service, a plan sponsor can delegate responsibility to AB for its insurance product selection,” he adds. “This should make plan sponsors feel more comfortable in offering employees guaranteed income in retirement.”

AB says its Lifetime Income Strategy is a natural extension of its customized target-date expertise and provides participants with a personalized asset-allocation strategy that helps build critical retirement savings, followed by guaranteed income for life. Guaranteed income through the Lifetime Income Strategy is provided by multiple insurers through a technology platform established by AB to operate as an insurer marketplace. This marketplace is a core element of AB's fiduciary service as it helps to ensure that guaranteed income is fairly priced, the firm says.

AB's multi-insurer approach is also meant to help address sponsor concerns around sustainability, as insurers participating in the marketplace can change over time without reducing the ability to generate guaranteed income for current and future plan participants.  

To learn more about AB's defined contribution solutions, go to www.abdc.com. 

Compliance November 5, 2015

Bill Calls for More Hedge Fund Transparency

A New York Congresswoman's bill would require more disclosure about hedge fund holdings.
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Legislation authored by Representative Nydia M. Velazquez (D-New York) would significantly strengthen reporting requirements for hedge funds.

Velazquez, who describes hedge funds as large privately organized, pooled investment vehicles not available to the public whose primary investors are wealthy individuals or institutions, says the “Hedge Fund Sunshine Act” (H.R. 3921) comes as media reports repeatedly link hedge funds to the ongoing financial crisis in Puerto Rico.

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The bill is the latest move attempting to bring more clarity to the alternative investment industry, which is coming under increasing scrutiny. In 2010, the SEC approved a rule mandating hedge fund and private equity managers to register with the agency and be subject to surprise examinations. The Government Accountability Office (GAO) in 2011 stated that hedge funds and private equity investments pose a number of risks and challenges beyond those posed by traditional investments. More recently, a participant in retirement plans sponsored by Intel Corporation filed a lawsuit claiming its custom target-date funds were too heavily invested in private equity and hedge fund investments, making the funds too risky.

Using Puerto Rico and auto manufacturers as examples of financial opportunism, Velazquez called hedge funds predators that profit from financially distressed entities. “By giving the public and regulators a better sense of hedge funds’ activities, we can finally begin holding this secretive industry accountable for its actions,” Velazquez said in a statement.

Hedge funds are now required to file with the Securities and Exchange Commission (SEC) when they acquire ownership of more than 5% of a class of equity securities. Velazquez’s bill would lower that threshold to 1%, giving the public and the SEC with a better sense of funds’ holdings and financial positions.

H.R. 3921 would also institute a new quarterly reporting requirement for all securities—fixed income as well as equity—in which funds hold a 1% or greater ownership stake. This would mean that, for the first time, these funds would publicly report on their larger debt holdings, such as the significant stake many funds are suspected of holding in Puerto Rico’s debt. These requirements would also take into account derivatives like options and swaps, financial instruments Velazquez says are often used to skirt reporting requirements.

NEXT: A $3 trillion industry that operates with minimal oversight.

“Hedge funds constitute a $3 trillion industry with enormous impact on capital markets, corporations, local governments and, ultimately, working families’ lives,” Velazquez stated. “Yet, due to loopholes in existing law, they operate largely in the shadows, avoiding scrutiny.”

Estimates range widely as to how much of Puerto Rico’s debt is currently held by hedge funds, but some media outlets have suggested hedge funds could control as much as 50% of the island’s financial obligations. Through this outsized role, many funds have been pushing for greater austerity managers and against extending bankruptcy protections to the island.

“Rather than working to help resolve Puerto Rico’s financial crisis in a fair, orderly fashion, these funds are lobbying to cut basic services that 3.5 million American citizens in Puerto Rico rely upon,” Velazquez noted. “It is time we take a clear-eyed look at the effect these funds are having on Puerto Rico and on other parts of our nation’s economy.”

Velazquez’s bill received wide support from a range of advocacy and labor groups including: Americans for Financial Reform; AFL-CIO; AFSCME; Make the Road New York; Strong Economy for All Coalition; Center for Popular Democracy; and Hedge Clippers. The bill, which is being introduced this week, is expected to be referred to the House Committee on Financial Services, of which Velazquez is a senior member.

“This bill will allow regulators and the public to see exactly what role these funds are playing in Puerto Rico’s financial crisis and in our broader economy,” Velazquez said.

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