Products April 15, 2021

Investment Product and Service Launches

Voya Financial offers NQDC portfolios for workplace clients; Investics announces enhancements to cloud ecosystem; PGIM launches new active aggregate bond ETF; and more.

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Art by Jackson Epstein

Art by Jackson Epstein

Voya Financial Offers NQDC Distribution Portfolios for Workplace Clients

Voya Financial Inc. has launched new distribution portfolios for its nonqualified deferred compensation (NQDC) plans. The investment models were developed with Voya Investment Management’s Multi-Asset Strategies and Solutions team and are specifically designed for individuals looking to closely align their NQDC distribution dates with the investments in their plan. 

Voya’s NQDC distribution portfolios provide four professionally managed asset allocation options, providing flexibility for individuals to elect scheduled distributions using one or more investment time horizons with distribution windows of three, five, eight or 10 years. 

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“Providing the tools, resources and knowledge to support individuals throughout their nonqualified deferred compensation plan experience is critical in helping them achieve their financial goals,” says Kirk Penland, senior vice president, nonqualified markets at Voya Financial. “We know target-date funds [TDFs] are one of the most popular investment choices when it comes to one’s 401(k) plan, so we wanted to structure a solution with similar benefits of a TDF but tailored to the needs of NQDC participants. Rather than providing a distribution that is tied to a retirement date as you would see in a TDF, the distributions are aligned to dates that one has selected to receive their nonqualified plan savings. This offers several advantages for those looking to tie distributions to certain life stages beyond retirement, such as saving for a child’s education, a new house or any short-, medium- or long-term goals.”  

Through Voya’s new distribution portfolios, individuals have greater flexibility to coordinate their lump-sum distribution election and investments—ideally, reducing possible account volatility as one gets closer to each distribution. 

“Flexibility is incredibly important when it comes to the benefits that a deferred compensation plan can provide,” Penland adds. “It’s also becoming increasingly important to provide support not just for the tracking of contributions and distributions, but also in providing a platform that allows participants to manage and integrate their distributions with their broader savings plans and assets.” 

  The models were developed by Voya Investment Management’s Multi-Asset Strategies and Solutions (MASS) team, which oversees $33 billion in assets under management (AUM) and consists of more than 25 investment professionals who design customized and packaged multi-asset-class solutions, including $19 billion in target-date strategies, as of December 31.

Investics Announces Enhancements to Cloud Ecosystem

Investics Data Services Co. Inc. has announced four major new components to the Investics Cloud Ecosystem (ICE).

Running on Amazon Web Services (AWS), ICE is a native cloud investment data and analytics platform which combines data collection and aggregation and uses case modeling with calculation engines and visualizations to meet common industry requirements, including performance measurement, risk analytics, investment compliance and regulatory reporting.

With data encryption at rest, the ICE integrates portfolio holdings and transactions from financial institutions, accounting/trading systems and data warehouses; environmental, social and governance ESG measures; risk statistics and characteristics; industry benchmarks; and security master and reference data optimized for immediate use in both cloud and non-cloud business intelligence (BI) and artificial intelligence (AI) tools, APIs and other software and systems.

The four new Investics ICE components are: data aggregation remediation transformation service (DARTS), a data delivery supermarket; Fusion, a fabric construct for modeling and stitching related data together within a data lake; in-memory performance risk engine service (IMPRES), for risk and return calculations; and Vision, a customizable, interactive embedded dashboard and graphical reporting.

In conjunction with this announcement and until April 2022, Investics will be waiving the one-time licensing fee for clients who subscribe to the hosted ICE platform through AWS Marketplace.

PGIM Launches New Active Aggregate Bond ETF

PGIM Investments is expanding its exchange-traded fund (ETF) lineup with the launch of the PGIM Active Aggregate Bond ETF (PAB).

PAB is an actively managed fixed income ETF seeking total return through a combination of current income and capital appreciation. PAB offers core fixed income exposure through a diversified portfolio of investment-grade bonds with an estimated total expense ratio of 0.19%.

“Given the current low-yield environment and potential for increased market volatility, there has been strong client demand for active fixed income solutions,” says Stuart Parker, president and CEO of PGIM Investments. “We are pleased to expand our lineup to include a low-cost active core bond ETF that offers alpha potential with effective risk management via PGIM Fixed Income, one of the largest and most experienced bond managers in the world.”

PGIM Investments’ suite of fixed income ETFs is managed by PGIM Fixed Income. The PGIM Active Aggregate Bond ETF, managed by senior members of PGIM Fixed Income’s multi-sector team Richard Piccirillo, Lindsay Rosner and Stewart Wong, includes investment restrictions on characteristics such as duration, quality and sectors in order to manage portfolio risks.

Luma Partners With CANNEX on Annuity Pricing

Luma Financial Technologies, an independent, multi-issuer structured products and annuities platform, has selected CANNEX as its latest partner to facilitate the exchange of pricing and analytics for annuity products on its platform.

The Luma platform is said to simplify complex financial instruments such as structured products and annuities, as well as streamlines what has historically been a manual investment process.

“We’re proud to provide our customers with an unmatched sales experience through the entire annuity lifecycle,” says Jay Charles, director of annuities at Luma Financial Technologies. “Our partnership with CANNEX enhances our platform’s data and analytics features, so advisers can make the most informed recommendations to their clients when it comes to including annuity products in a properly balanced portfolio. Ultimately, our market-leading technology is revolutionizing the annuity industry and providing a powerful tool for advisers to utilize in meeting their clients’ retirement needs.”

By partnering with CANNEX, Luma customers will receive product data and modeling support across all annuity types including fixed rate, fixed indexed, registered index-linked and variable annuities. The CANNEX database and illustration engine will enable financial professionals using the Luma platform to research and select products as well as illustrate accumulation and income performance before continuing with the application process. CANNEX modeling capabilities will also enable advisers to test a variety of allocation options under different market scenarios for indexed and variable products.

The Luma partnership is made possible with a new recent release of the CANNEX savings annuity platform. By working closely with over 30 carrier partners, CANNEX is able to provide a single, normalized source of accurate data and illustrative results to third-party applications and service providers that wish to improve the effectiveness and efficiency of sales and planning processes.

Agency Lending Team at State Street to Establish ESG Strategy

State Street Corp. has announced its intention to establish its Agency Lending Program’s first environmental, social and governance (ESG)-aware commingled cash collateral reinvestment strategy.

The Agency Lending team of State Street Global Markets has partnered with State Street Global Advisors, the asset management business of State Street Corporation, to provide securities lending clients with a commingled cash collateral reinvestment strategy that follows short-term investment guidelines, while considering R-Factor, a proprietary ESG scoring system as a component in making its investment decisions, to the extent consistent with applicable law.

The strategy is currently available only to retirement plan clients that participate in State Street’s Agency Lending Program and is not otherwise available to the public.

“The groundswell of ESG support among the institutional lender and beneficial owner community in recent years has given rise to a multiplicity of related products, but the product category for ESG-aware, commingled cash reinvestment funds remains untapped,” says Francesco Squillacioti, global head of client management – securities finance at State Street Global Markets. “This launch affords State Street’s institutional client base yet another opportunity to express their focus on ESG and reaffirm their attention to socially responsible yet prudent investing through a securities lending program.”

Compliance April 15, 2021

ERISA Attorneys Digest the DOL’s New PTE FAQ

The guidance published by the Department of Labor reminds the industry that boilerplate, fine print disclaimers that investment advice is not being provided won’t cut it.

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In their latest post published to Stradley Ronon’s fiduciary governance blog, two ERISA [Employee Retirement Income Security Act] specialists with the firm break down the Department of Labor (DOL)’s recently published frequently asked questions (FAQ) document, which covers the prohibited transaction exemption (PTE) regulation finalized last year.

The post, from attorneys George Michael Gerstein and John Dikmak Jr., explains that the Biden administration’s regulatory freeze has not impacted the rollout of the PTE, despite its finalization late in the Trump administration, so it is very important for advisers to review the new guidance.

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By way of background, the PTE was finalized in December and took effect in mid-February, despite President Joe Biden’s election and the installation of new leadership at the DOL. It is generally applicable to registered investment advisers (RIAs), broker/dealers (B/Ds), insurance companies, banks and individual investment professionals who are their employees or agents.

Broadly speaking, the exemption permits investment advice fiduciaries to receive compensation as a result of providing fiduciary investment advice, including fiduciary investment advice to roll over a participant’s account in an employee benefit plan to an individual retirement account (IRA)—among other similar types of rollover recommendations. The exemption also permits investment advice fiduciaries to enter into “principal transactions” in which they could sell or purchase certain securities and other investments from their own inventories to or from plans and IRAs.

The DOL stipulates the proposed class exemption would require fiduciary investment advice to be provided in accordance with the following criteria: “A best interest standard, a reasonable compensation standard and a requirement to make no materially misleading statements about recommended investment transactions and other relevant matters.” Ostensibly, by complying with the Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI), advisers or other investment professionals will satisfy all of these criteria.

Of course, actually implementing the PTE comes with a significant degree of complexity, and so the DOL has published the new FAQ.

Such guidance documents themselves are rarely straightforward, which is why attorneys like Dikmak and Gerstein often present their own analyses. As the pair summarizes, the PTE’s transition period allows parties to devise mechanisms to comply with the provisions in the exemption any time before December 20, 2021. In the FAQ, the DOL hints at further sub-regulatory guidance and the potential for once again overhauling the fiduciary investment advice regulation. However, no promises were made or timetables offered, Gerstein and Dikmak note.

“The DOL reiterates that a ‘single, discrete instance of advice to roll over assets from an employee benefit plan to an IRA’ would generally not give rise to investment advice under ERISA,” the attorneys write. “But, such communication could constitute investment advice if it were part of an ongoing relationship or the beginning of an intended future ongoing relationship that an individual has with the investment advice provider.”

This is a very important distinction, and one that might not be fully appreciated by those who have merely skimmed the PTE, they say. Relatedly, the DOL FAQ reminds the industry that boilerplate, fine print disclaimers that investment advice is not being provided generally won’t cut it.

“This echoes the sentiment the DOL expressed in 2020,” Gerstein and Dikmak say. “However, written statements disclaiming a ‘mutual’ understanding or forbidding reliance on the advice as ‘a primary basis for investment decisions’ may be considered in determining whether a mutual understanding exists, but such statements will not be determinative.”

According to the attorneys, ultimately, the determination of whether there is a “mutual” understanding that investment advice is being provided will be based on the totality of the facts and circumstances. Furthermore, investment professionals and financial institutions can provide such investment advice, despite having a financial interest in the transaction, as long as the advice meets the best interest standard.

“Under this standard, the advice must be based on the interests of the customer, rather than the competing financial interest of the investment professional or financial institution,” the attorneys explain. “Investment professionals may receive payments for their advice within this framework.”

Among other points made in the post, the attorneys go on to emphasize that financial institutions must take special care in developing and monitoring compensation systems to ensure that their investment professionals satisfy the fundamental obligation to provide advice that is in the retirement investor’s best interest.

“With carefully considered compensation structures, financial institutions can avoid structures that a reasonable person would view as creating incentives for investment professionals to place their interests ahead of the interest of the retirement investor,” the attorneys write. “Thus, quotas, bonuses, prizes and performance standards are likely out. On the flip side, a financial institution could provide level compensation for recommendations to invest in assets that fall within reasonably defined investment categories (e.g., mutual funds), and provide heightened supervision as between investment categories (e.g., between mutual funds and fixed annuities), to the extent that it is not possible for the institution to eliminate conflicts of interest between these categories.”

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