Products February 10, 2022

Investment Product and Service Launches

Pershing and Pacific Life make fee-only annuities available to RIAs; ISS ESG launches labels and standards solutions; Xtrackers by DWS launches ETF with exposure to high-yield corporate bonds; and more.

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Art by Jackson Epstein

Art by Jackson Epstein

Pershing and Pacific Life Make Fee-Only Annuities Available to RIAs

Pacific Life has announced a new collaboration with BNY Mellon’s Pershing to make its fee-only annuities available to registered investment advisers, while providing a streamlined portfolio-management experience.

“We’re proud to collaborate with Pershing, one of the industry’s most prominent custodians,” says Jeremy Couch, director of advisory integration services in the retirement solutions division at Pacific Life. “RIAs can access Pacific Life’s advisory-centric products through Pershing and also get a real-time view of those annuities alongside their clients’ portfolios within a single adviser workstation. Direct account data feeds have eliminated barriers to annuities and give advisers the account information they need at their fingertips, easing time and administrative burdens.”

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Pacific Life’s dedicated RIA team, Pacific Life Advisory, is focused on creating competitive, fee-only annuities and helping fee-only advisers incorporate them into their practices. Simplified technology integrations are a priority, and the company continues to team up with new custodians and insurance-licensing firms to make it as easy as possible to include annuities in clients’ portfolios.

ISS ESG Launches Labels & Standards Solutions

As voluntary environmental, social and governance labels and standards continue to grow in relevance and popularity globally, ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc., has launched “one-stop fully integrated ISS ESG Labels & Standards Solutions.” These solutions leverage robust data from ISS ESG’s wide range of highly specialized proprietary solutions to support asset managers and asset owners in addressing ESG needs.

Alignment with labels and standards can be challenging due to the diversity of approaches taken by different governance and administrative bodies. These standards come in many forms, including the integration of global principles, reporting and disclosure frameworks, as well as product-specific labels or awards.

Due for release in early February, the ISS ESG Labels & Standards Solutions are designed to cover key jurisdictions and international frameworks and will be rolled out on a region-specific basis. Requirements of the different labels and standards vary significantly, from qualitative and quantitative reporting and disclosure, adhering to minimum standards, to integrating ESG considerations into the investment process.

The solutions include ISS ESG’s global coverage of up to 8,000 issuers for equity and fixed-income assets, enhanced climate and controversies data related to an assessment universe of up to 28,500 issuers’ greenhouse gas data, plus 25,000 issuers covered within norms-based research.

“Keeping track of the varying requirements of ESG labels and standards globally is an ongoing challenge for investors,” says Maximilian Horster, head of ISS ESG. “The one-stop fully-integrated ISS ESG Labels & Standards Solutions tailored to different geographic markets provides consolidated functionality for up-to-date review, verification, disclosure and reporting.”

*Editor’s note: ISS is the owner of ISS Media, which operates PLANADVISER and PLANSPONSOR Magazines.

Xtrackers by DWS Launches ETF With Exposure to High-Yield Corporate Bonds

Xtrackers by DWS has launched an exchange-traded fund aimed at providing dynamic risk-controlled exposure to U.S. dollar high-yield corporate bonds.

The Xtrackers Risk Managed USD High Yield Strategy ETF tracks the Adaptive Wealth Strategies Risk Managed High Yield Index, which uses a daily algorithm to dynamically adjust exposure between bonds and cash equivalent investments. It is designed to track the performance of the U.S. dollar-denominated high-yield corporate bond market during normal market conditions, and the performance of a U.S. dollar cash position during periods of adverse market conditions.

The underlying index uses a rules-based allocation mechanism to allocate between either 100% exposure to the Solactive USD High Yield Corporates Total Market Index or 100% exposure to the Solactive Fed Funds Effective Rate Total Return Index, based on quantitative market risk signals derived from measurements of price changes in the market.

The ETF has a gross/net expense ratio of 0.45%/0.30% and is designed to use investments in other Xtrackers ETFs to gain exposure to high-yield bonds, in particular Xtrackers USD High Yield Corporate Bond ETF.

Principal Advances Plan for First Semi-Transparent ETF Offering

Principal Global Investors has announced its plan to add its first semi-transparent exchange-traded fund to its growing lineup of ETFs, filing for an exemptive order to use Fidelity’s active equity ETF methodology. This approach complements Principal’s active management capabilities.

When approved and launched, the first semi-transparent ETF offered by Principal will target real estate assets.

“We believe in active investing and are excited to expand our offerings of new investment strategies and solutions that could deliver strong performance and generate more income for investors,” says Jill Brown, Principal Global Investors U.S. wealth markets managing director. “There’s tremendous growth potential in semi-transparent ETFs and, with our active management DNA, we believe we’re uniquely positioned to deliver in this space.”

Principal currently offers 14 ETFs—six strategic beta and eight actively managed—that are designed to enhance investor returns, mitigate risk and improve portfolio diversification.

Fidelity’s active equity ETF model employs a “tracking basket” methodology, which maintains the benefits of the ETF structure, provides information to market participants to promote the efficient trading of shares, and preserves the ability to add value through active management.

“We are excited to work with Principal as it seeks to expand its ETF offering and develop innovative new solutions to help meet the needs of investors,” says Greg Friedman, head of ETF management and strategy at Fidelity. “We believe Fidelity’s methodology is an industry-leading approach, designed to operate seamlessly within the existing ETF market.”

Compliance February 10, 2022

A Reminder to Avoid Fraudulent Hardship Withdrawals

An individual in Ohio was recently indicted by a grand jury on charges that he fraudulently claimed the assets he withdrew from his retirement account would be used to purchase a primary residence and to pay medical expenses.

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The U.S. District Court for the Southern District of Ohio has ruled against a dismissal motion filed by the defendant in a lawsuit stemming from federal grand jury charges related to allegations of fraudulent hardship withdrawals taken from a tax-advantaged retirement plan.

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As alleged in the indictment, the defendant in the case was employed by Academy Health Services Inc., a home health care provider. The company offers its employees access to a 401(k)-style retirement savings plan, in which the defendant participated, according to case documents. As is par for the course, the plan is supported by a third-party administrator, Latitude Retirement Services, and by a custodian, Mid Atlantic Trust Co.

Case documents show that, in 2019, the defendant submitted to Latitude two hardship withdrawal applications to obtain disbursements from his 401(k) account. The first was made in June 2019 and the second in October of the same year. According to the order rejecting the defendant’s dismissal motion, the applications stated the funds would be used to purchase his primary residence and pay medical expenses. Both of these would be permissible reasons for a hardship withdrawal under the plan and the applicable tax laws and benefit plan regulations.

As recounted in the order, both applications were processed and resulted in Mid Atlantic disbursing funds to the defendant’s bank account. Based on the grand jury’s findings and recommendation, the government alleges the defendant used the funds for impermissible purposes, such as personal expenses, and therefore falsely represented the purpose of the withdrawals on the applications. Further, the government alleges the defendant forged a plan trustee’s signature on the applications.

Based on these actions, the defendant faces charges of wire fraud, making false statements and concealing facts in a legal proceeding. As noted by the court’s order, a conviction of wire fraud requires that the government show the defendant devised or willfully participated in a scheme to defraud, that he used an interstate wire communication to further the scheme and that he intended to deprive someone of money or property. The dismissal motion filed by the defendant argues he cannot, as a matter of law, be convicted of wire fraud, because did not deprive a victim of money or property.

In explaining its rationale, the court points out that Section 4.4(a) of the plan document provides that “the administrator shall establish and maintain an account in the name of each participant.” Section 4.2(c) further provides that the defendant’s “elective deferral account shall be fully vested at all times and shall not be subject to forfeiture for any reason.” Given these sections in the plan document, the defendant says he was the owner of the funds he obtained as a result of the hardship withdrawal applications and thus he did not deprive another of their property interest. In response, the government notes Section 4.2(d) of the plan document prohibits distributions from a participant’s elective deferral account “except as authorized by other provisions of this plan.”

The government also contends that, despite the defendant’s account being fully vested, the funds the defendant withdrew are plan assets, rather than assets owned by the defendant.

The order states that the Ohio District Court is aware of only one other federal court that has addressed this issue. In United States v. Barringer, the defendant was convicted by a jury of wire fraud, among other charges, for transmitting a fraudulent hardship withdrawal form to her company’s 401(k) plan provider to obtain a distribution from her account. However, the court in that case reversed course and granted the defendant’s motion for judgment of acquittal on the wire fraud conviction, finding the government in fact failed to prove that the defendant’s deceit deprived another person or entity of a property interest.

Ultimately, the plan provider’s contractual interest did not qualify as a property interest, and although it was deemed “possible” that the trustee may have held such a property interest, the court concluded the government’s witness did not adequately claim that the plan provider was the victim of a fraud nor suffered any loss due to the defendant’s misrepresentations contained in the hardship withdrawal forms.

Reflecting on this precedent, the new order states that, while the facts in Barringer are directly comparable to the facts of this case, the difference in procedural posture is significant, as the court in Barringer ruled after the evidence was submitted at trial.

“Here, the government intends to present evidence at trial regarding the plan document and the relationship between the trustee, plan administrator, asset custodian, plan and assets, as well as evidence of the misrepresentations made,” the new order states. “The government contends this evidence will demonstrate that the funds the defendant obtained were plan assets in which the trustees had a property interest.”

As sch, the order concludes, whether the government’s evidence will support the wire fraud charges is a question of fact for the jury. Accordingly, the defendant’s motion to dismiss as to the wire fraud charges is denied. Similar conclusions are reached by the court regarding the other charges, and thus the case can proceed to trial.

The full text of the order is available here.

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