Products July 25, 2019

Investment Product and Service Launches

Stadion's managed account service offered on TRG platform; Apex builds ESG rating service and adds global development head; Northern Trust Forms Options Trading Desk in Chicago; and more.

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Art by Jackson Epstein

Art by Jackson Epstein

Stadion’s Managed Account Service Offered on TRG Platform

Stadion Money Management has announced today that Touchstone Retirement Group (TRG) has made Stadion’s managed account service StoryLine, built with SPDR ETFs, available on its retirement solutions platform. TRG is a provider of retirement plan recordkeeping services to employer-sponsored retirement plans, mainly small and midsized employers.

“TRG’s delivery of a competitive personalized service model for advisors complements our approach to the market,” says Jud Doherty, president & CEO of Stadion Money Management. “We’re delighted that they’ve chosen to make StoryLine available and look forward to a long and beneficial relationship with them.”

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The StoryLine process first seeks insight into the overall plan make-up with the intent of tailoring default options for each plan sponsor, according to Stadion Money Management. Employees can further define their individual investment paths based on personal risk profiles. StoryLine allows, at the employee’s discretion, the inclusion of outside and spousal assets to facilitate more comprehensive retirement planning. The end goal is to have each participant on a personalized path that goes well beyond typical age-based investment strategies. 

“StoryLine’s delivery of customization at both the plan and participant level adds a valuable service to our recordkeeping services,” said Jonathan Duggan, Principal of TRG. “We’re pleased to make this solution available to the advisors who access our platform so that they can bring it to the attention of plan sponsors nationwide.”

Apex Builds ESG Rating Service and Adds Global Development Head

Apex has launched a new environmental, social and governance (ESG) data and rating service, Apex GreenLight ESG Ratings (GreenLight), and has appointed a global head of ESG Product to drive development.

GreenLight is said to deliver an in-house developed ESG rating evaluating privately held companies globally, unlocking market intelligence and delivering access to a previously opaque asset class.

The service will also deliver consulting services to support the integration of ESG across clients’ due diligence, value creation and reporting processes.

The new product line will be offered alongside Apex’s ESG reporting solutions for listed assets, launched in October 2018, delivering an enhanced set of solutions to ease the reporting and due diligence process.

Amara Goeree has been appointed as global head of ESG Product and will lead the firm’s product development and go-to-market strategy. Goeree is a sustainability specialist with almost a decade’s experience in ESG innovation within financial services. Most recently Goeree was head of Corporate Sustainability and Responsible Investment at Julius Baer. She has also acted as deputy head of the team leading the ESG ratings process for the Dow Jones Sustainability Index at RobecoSAM AG.

Apex is also currently in the process of becoming a UN PRI signatory.

Principal Global Investors Launches New Multi-Factor ETFs

Principal Global Investors has expanded its factor exchange-traded fund (ETF) suite with the launch of the three new multi-factor ETFs: Principal U.S. Large-Cap Multi-Factor Core Index ETF (PLC), Principal U.S. Small-Mid Cap Multi-Factor Core Index ETF (PSM), and Principal International Multi-Factor Core Index ETF (PDEV). The funds launched on July 24.

Multi-factor core ETFs are designed to serve as the foundation of an investor’s portfolio, complementing alpha-generating, high active share strategies. PLC, PSM and PDEV were initially developed for RobustWealth, the digital wealth management platform of Principal, to provide investors with strategic beta strategies with relatively low tracking error and competitive fees, but will also be available to the general marketplace.

The portfolio management team for the funds within Principal’s Global Systematic Solutions team (GSS) maintains innovative factor definitions and combinations that seek to enhance investors’ risk/return profile through outperformance of standard market-cap weighted indices while not increasing risk. Portfolio construction for the funds combines three distinct factors: shareholder yield, momentum and quality growth. 

“We are excited with the growth and direction of our ETF platform. These ETFs provide additional choices for our investors when building portfolios. The factor ETFs are index-aware and provide a balance of potential outperformance and limited tracking error to established market-cap weighted benchmarks. They are cost-efficient, comprised of multiple factors, and designed for use as core holdings in portfolios,” says Paul Kim, managing director, ETF Strategy at Principal Global Investors.

The Principal U.S. Large-Cap Multi-Factor Core Index ETF is a strategic beta fund designed to provide broad index-aware U.S. large cap equity exposure while incorporating a multi-factor model and modified weighting process to potentially enhance the risk/return profile. The multi-factor model seeks to identify equity securities of companies in the Nasdaq US Large Cap Index that exhibit potential for high degrees of sustainable shareholder yield (value), pricing power (quality growth), and strong momentum. The fund’s objective is to track the Nasdaq US Large Cap Select Leaders Core Index.

The Principal U.S. Small-MidCap Multi-Factor Core Index ETF is designed to provide broad index-aware U.S. small, mid-cap equity exposure while incorporating a multi-factor model and modified weighting process to potentially enhance the risk/return profile. The multi-factor model seeks to identify equity securities of companies in the Nasdaq US Small Cap Index and Nasdaq US Mid Cap Index that exhibit potential for high degrees of sustainable shareholder yield, pricing power, and strong momentum. The fund’s objective is to track the Nasdaq US Small Mid Cap Select Leaders Core Index.

Lastly, the Principal International Multi-Factor Core Index ETF will provide broad index-aware developed international equity exposure while incorporating a multi-factor model and modified weighting process to potentially enhance the risk/return profile. The multi-factor model seeks to identify equity securities of companies in the Nasdaq Developed Market Ex-US Ex-Korea Large Mid Cap Index that exhibit potential for high degrees of sustainable shareholder yield, pricing power, and strong momentum. This fund’s objective is to track the Nasdaq Developed Select Leaders Core Index.

Northern Trust Forms Options Trading Desk in Chicago

Northern Trust has established an options trading desk within its institutional brokerage business, expanding its global capabilities in response to demand from asset owners and asset managers. The Chicago-based options desk provides institutional clients globally with options trading and streamlined reporting for prime brokerage.

“As sophisticated investors navigate fluctuating markets, Northern Trust continues to broaden our capabilities to increase speed, provide transparency and manage market impact, all of which can contribute to investment performance results,” says Guy Gibson, global head of Institutional Brokerage. “This new options trading desk demonstrates our commitment to meet the evolving needs of asset manager and asset owner clients who seek tailored solutions to manage risk and portfolio exposures efficiently across global markets.”

Options trading at Northern Trust is offered through an agency model with no principal trading operation in order to drive alignment with client interests and best execution practices. Through its proprietary network, Northern Trust provides clients with access to deep pockets of diversified liquidity over a range of trading venues, while working to maintain as low a market impact as possible. Additionally, Northern Trust improves the client options trading experience with enhanced prescriptive and exploratory analytics developed in-house and through strategic partnerships.

In Practice July 25, 2019

The RIA M&A Party Rolls On

An interest in consolidating wealth management and institutional businesses drove many advisory industry M&A deals in the second quarter.

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Offering a sneak peek at PwC’s second quarter 2019 report highlighting asset and wealth management merger and acquisition (M&A) activity, Greg Peterson, financial services leader for PwC deals, and Gregory McGahan, asset and wealth management leader, say there is little sign that the pace of M&A activity will slow down any time soon.

The pair note that wealth management-focused deals rose 58% during the first half of 2019 compared with the first half of 2018. Looking across the whole financial services landscape, the wealth management segment remained the strongest sub-sector for M&A activity, with 29 reported deals—the highest quarterly total during the past five years.

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As previously reported, the quarter saw repeat acquirers growing their scale through such transactions, usually focusing on smaller, family office firms. Among the 57 deals announced by wealth management firms from January through June, 46% involved an acquiring firm that had bought at least one other wealth manager since the start of 2019.

“The volume of deals continues to be quite strong, and there is a consistent theme in terms of what is driving this trend,” Peterson says. “The pressure for M&A is coming from a serious crunch with respect to fee pressures and performance pressures. Firms are trying to figure out how to right-size their businesses for the emerging lower-margin environment.”

According to Peterson and McGahan, firms are addressing this challenge by looking at opportunities for outsourcing as well as opportunities to drive overall cost reductions. Many firms are looking to add more volume from a scale perspective, as well, and many of them are looking into the M&A market as a result.

“We still have an environment where it’s pretty cheap to fund these transactions,” McGahan says. “On the sellers’ side, today’s very high valuations are driving more people to sell—not to mention the fact that there are a lot of aging advisers out there who are seeing this environment as an opportunity to transition out of the business. The firms that are making acquisitions are seeking geographic expansions and a deeper customer base.”

According to the pair, high multiples are being paid for a few reasons, starting with the fact that a lot of deals today are taking place in a transparent and competitive marketplace. Back in the early 1990s, they explained, M&A activity in this space was more opaque and tended to come in one-off transactions that did not involve a competitive bidding process. Today, firms are basically being auctioned off to the highest bidder, which essentially creates a premium on the price of these practices.

“One important note is that most of the high multiples reported are based on the historical cost structure of the acquisition target,” Peterson says. “If you are a consolidator here and you’re able to pick up and onboard the new client base while eliminating a significant amount of the fixed and variable costs of serving these clients, just through that shift alone, it makes the multiple seem more reasonable. If you have a strategy that can actually create revenue lift as well, that provides additional upside. A lot of dealmakers are looking at the multiples with this type of thinking in mind.”

Looking out five or 10 years, Peterson and McGahan agree, it is hard to predict where the advisory industry may end up, and whether there will still be clear divisions between institutional-focused RIAs and wealth managers (or other providers such as insurers or asset managers).

“The role of the financial adviser will remain important, we believe,” McGahan emphasizes. “They have faced challenges including the emergence of robo-advisers, but technology in the end can only make their job better. More and more, technology is driving the back office, which allows advisers to focus on the real job of advising—sitting down with clients and working with them in an interpersonal way.”

Peterson predicts that there are going to be fewer advisory firms 10 years down the road.

“There will be large firms that can do a number of different things and work across an entire continuum of services,” he says. “People will go to these firms and get a lot of electronic interaction, but there will still be a person there to help them think through their options and make a choice. Simply put, the marketplace won’t need as many firms to do this work as there are in existence today.”

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