Products November 4, 2021

Investment Product and Service Launches

PIMCO, Morningstar team up on personalized TDF solution; Schwab launches the Schwab Ariel ESG ETF; and Confluence Technologies to acquire Investment Metrics.

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Art by Jackson Epstein

Art by Jackson Epstein

PIMCO, Morningstar Team Up on Personalized TDF Solution

Fixed-income investment manager PIMCO has partnered with the retirement group within Morningstar Investment Management LLC, a subsidiary of Morningstar Inc., to enable PIMCO to provide a personalized target-date fund (TDF) solution to participating 401(k) plans and other types of retirement plans.

Powered by Morningstar Investment Management’s user interface and network of data integrations with recordkeepers, myTDF will incorporate factors such as an individual’s age, salary, assets, savings rate and company match rate to assign more personalized investment allocations for individuals.

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PIMCO’s myTDF will use data already accessible through employer-sponsored retirement plans so that even the most disengaged saver can receive a customized solution, PIMCO says.

“myTDF aims to be a new default retirement solution for 401(k) plan participants,” says Rene Martel, PIMCO’s head of retirement. “Through myTDF’s automated personalization, we can bring a more precise and tailored target-date solution to all participants, including those who are not actively involved in managing their retirement savings.”

Schwab Launches the Schwab Ariel ESG ETF

Schwab Asset Management, the asset management arm of the Charles Schwab Corp., has announced it is launching the Schwab Ariel ESG ETF (SAEF), an active, semi-transparent (aka non-transparent) exchange-traded fund (ETF) that invests in small- and mid-cap stocks that have been screened based on environmental, social and governance (ESG) factors.

The new ETF will be sub-advised by Ariel Investments LLC, the first African American-owned investment firm in the U.S. The first day of trading is expected to be on or about November 16.

SAEF will provide investors with access to the proprietary ESG investment process pioneered by Ariel. The fund seeks to deliver long-term capital appreciation by leveraging Ariel’s value-based investment process, which is focused on small- and mid-cap U.S. companies with favorable ESG characteristics as measured by Ariel’s ESG risk rating process.

SAEF can serve as a core or complementary equity ESG allocation within a portfolio. The fund has an operating expense ratio of 59 basis points (bps).

The Schwab Ariel ESG ETF offers active management in a semi-transparent ETF. Ariel says its focus on value and small- and mid-cap equity securities differentiates the new ETF from most ESG strategies, which tend to skew toward growth and large-cap securities. Ariel will leverage its proprietary ESG research to derive a proprietary ESG-risk rating for each holding, or prospective holding, in the fund. In addition, Ariel will employ a negative screening process in the fund’s security selection, which seeks to exclude from the fund companies whose primary source of revenue is derived from the production or sale of tobacco products, the exploration for or the extraction of fossil fuels, the operation of private prisons or jails, and the manufacture of firearms, personal weapons, small arms or controversial military weapons.

Confluence Technologies to Acquire Investment Metrics

Confluence Technologies Inc., a technology solutions provider seeking to help the investment management industry solve complex investment data challenges, has agreed to acquire Investment Metrics.

Investment Metrics is a provider of investment data, performance, analytics and research software solutions seeking to help institutional investors and advisers achieve better financial outcomes, grow assets and retain clients with clear investment insights. Confluence is backed by Clearlake Capital Group L.P. and TA Associates.

The acquisition seeks to advance Confluence’s portfolio analytics offering and expands its reach into the asset owner and asset allocator markets, the firm says. With the addition of these new capabilities, Confluence will be able to offer clients greater operational efficiency. The transaction is expected to close in the fourth quarter of this year.

Founded in 1998 and headquartered in Norwalk, Connecticut, Investment Metrics services more than 400 clients across 30 countries with solutions that drive insights across more than 20,000 institutional asset pools, 28,000 funds and 910,000 portfolios, representing more than $14 trillion in assets under advisement (AUA). Investment Metrics empowers institutional investment allocators, asset owners and asset managers with reporting and analytical research solutions that are foundational to the institutional investment ecosystem.

“There is a growing need in the market for solutions that streamline operational efficiencies and drive scale,” says Mark Evans, CEO of Confluence. “By combining our capabilities with those of Investment Metrics, we will be optimally positioned to deliver a comprehensive analytics solution to our clients, while streamlining analysis and providing fiduciary oversight across the wider ecosystem.”
In Practice November 4, 2021

Practice Progress: 15 Years of Industry Evolution

When PLANADVISER Magazine was founded in fall 2006, the Pension Protection Act had just been passed, and industry professionals were asking big questions about their own futures. Today, much has changed, yet much remains the same.

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The PLANADVISER Practice Progress webinar hosted last month looked back over the 15-year history of PLANADVISER, asking how the regulatory landscape has changed, how the nation’s general retirement policies have developed and how advisers fit into the picture.

As the panelists recounted, PLANADVISER’s founding coincided with the passage of the Pension Protection Act of 2006, known then and now as the “PPA.” The landmark retirement legislation was the perfect tool to help plan sponsors that were struggling to grow employee engagement with their defined contribution (DC) retirement plans, said Brian Catanella, senior vice president of wealth management at The Catanella Institutional Consulting Team at UBS. Most notably, the PPA broadly permitted employers to automatically enroll their participants in the retirement plan, while giving them leeway to steer employee dollars toward well-diversified investment vehicles that sought solid returns. Previously, default funds tended to be low-earning investments focused on capital preservation.

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After the law was passed, many plan sponsors updated their plan designs to include target-date funds (TDFs) and other new features, such as automatic contribution escalations, which the panelists said immediately began to play an important role in providing enhancements and helping employees make the most of their retirement accounts.

The introduction of safe harbor contributions, Roth individual retirement accounts (IRAs), increased deferral limits and the Savers Credit Act were all instrumental pieces of the legislation, recalled Randall Long, SageView Advisory Group founder and CEO. Critically, the law helped companies grow more comfortable with adding auto-enrollment into their plan designs, which, in turn, changed the industry.  

The PPA was a leap forward, and it shifted the adviser’s role toward plan design optimization and fiduciary management, said Deena Rini, Oswald Financial retirement division vice president and practice leader. As advisers began to leverage the new tools at their disposal, many shifted their mindsets from a pure focus on overall plan health toward the individual plan participant’s health, she said.

“The PPA allowed individuals a chance at a successful retirement, and, in 2021, we are finally starting to see and realize that those changes and those new features are allowing for participants to have successful retirements through the DC plan system,” Rini said. “With the help of dedicated advisers, participants are not just chasing performance. Their engagement with the plan is based on more specific goals and outcomes, and I think that that really has come to fruition in the past 10 to 15 years.”

As the industry began to experience a period of high growth over the 2010 to 2020 decade, it also saw a lot of change and evolution among providers. Early on, there was a big focus on fee disclosure and compensation, recounted Josh Itzoe, FiduciaryWor(k)s founder and CEO. At the time, he embraced moving away from recordkeeping and asset-based advisory fees, instead choosing to charge fixed consulting fees.

Of course, challenges also arose after the PPA. During this time, advisers began to face “indirect fee compression,” meaning they had to start doing more for their clients, Itzoe said. That meant advisers were getting more involved with tasks such as monthly client calls. Advisory shops have also had to hire more staff and make fintech investments to keep up with the changing times.

Recordkeeper and administrative fee transparency has also grown very important over the past decade, Catanella said. In addition to holding recordkeepers accountable, advisers have acted as gatekeepers, protecting clients from potential issues.

Looking to the future, a few big forces are impacting the industry, and one of the largest is mergers and acquisitions (M&As), Itzoe said. He also said he thinks there will be a move “away from selling information to selling insights.”

“Advisers who can sell on insights and move their clients to act will be the most successful,” he proposed.

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