Products December 19, 2019

Investment Product and Service Launches

LifeYield partners with financial tech provider; Vanguard changes manager structure of value funds; Northern Trust expands collateral management services; and more.

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Art by Jackson Epstein

Art by Jackson Epstein

LifeYield Partners with Financial Tech Provider

LifeYield LLC has integrated with Orion Advisor Tech (Orion), a division of Orion Advisor Solutions and a provider of financial adviser technology and investment solutions. LifeYield’s integration draws on Orion’s client data to generate financial analytics highlighting opportunities to reposition assets for greater household tax efficiency.

Embedded in the LifeYield platform is the Taxficient Score, which helps advisers quantify the financial benefits of improved asset location. Using portfolio data already present in the Orion platform, LifeYield creates a report that includes the client’s Taxficient Score as well as suggestions on how to adjust asset locations to reduce client tax exposure. As an example, a $1 million household with a 50% fixed-income and 50% equity allocation could realize after-tax improved results of $325,000 over 15 years.

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“LifeYield offers RIAs a potent tool to engage clients with clear, actionable reporting that saves them money with smart tax optimization,” says Jeff Kliewer, integration product manager at Orion. “With this integration, advisers on our platform can efficiently take advantage of LifeYield’s technology without breaking stride to switch applications, while eliminating redundant data entry.”

Orion users can serve multiple-account households with LifeYield’s analytics and tax optimization reports based on their household membership, holdings, and asset location. Those reports can manually be taken back to Orion’s trading platform, Eclipse, for swift execution.

“The next frontier for financial services is where investment products, accounts, adviser tools, and platforms are coordinated and optimized to improve investor outcomes,” says Steve Zuschin, executive vice president, Advisor Success at LifeYield. “LifeYield’s Taxficient Score, powered by Orion’s award-winning platform, enables advisers to better communicate the value of tax-smart household management and improved after-tax returns.”

Vanguard Changes Manager Structure of Value Funds

Vanguard has announced changes to the multi-manager structures of three value funds: The Vanguard Windsor II Fund, the Vanguard Selected Value Fund, and the Diversified Value Portfolio of Vanguard Variable Insurance Fund. 

Two new advisory firms will join Vanguard’s lineup of 24 external investment advisers. Aristotle Capital Management, LLC has been added to Windsor II Fund, joining existing advisers Lazard Asset Management, LLC, Hotchkis and Wiley Capital Management, LLC, and Sanders Capital, LLC. 

Aristotle Capital is a 100% employee-owned investment manager with $19.6 billion in assets under management. The firm employs a value-oriented investment style founded on fundamental research and investing in high-quality businesses. Howard Gleicher, CFA, and Greg Padilla, CFA, will co-manage Aristotle Capital’s portion of Windsor II Fund.

Cooke & Bieler, L.P. has been added to Selected Value Fund, joining existing advisers Donald Smith & Co., Inc., and Pzena Investment Management, LLC. The employee-owned partnership manages only U.S. domestic value equities totaling $6.2 billion, mainly on behalf of institutional clients. Mehul Trivedi, CFA, and William Weber, CFA, who are partners and career analysts, will manage Cooke & Bieler’s portion of the Selected Value Fund on behalf of the eight-person team.

Lazard Asset Management, LLC, and Hotchkis and Wiley Capital Management, LLC, two of the current managers of Windsor II Fund, have been added to Vanguard Diversified Value Portfolio. These restructurings also result in Barrow, Hanley, Mewhinney & Strauss (BHMS) no longer serving as an adviser to the three funds. Vanguard Quantitative Equity Group, which has managed less than 1% of Windsor II Fund’s assets for the last 10 years, has also been removed from the advisory team.

“We are pleased to add Aristotle Capital and Cooke & Bieler to the exceptional array of investment firms managing Vanguard funds, and are confident that their management approaches will benefit clients over the long-term,” says Dan Newhall, head of global oversight and manager search for Vanguard Portfolio Review Department. “We are grateful for BHMS’ contributions to the long-standing success of these funds and their commitment to our investors.”

Newhall noted that to protect the funds’ shareholders and minimize trading impact, Vanguard has repositioned the portfolios and transferred assets to the new advisory firms.

Vanguard Windsor II Fund’s expense ratios are expected to change to 0.26% from 0.25% for Admiral Shares and to 0.34% from 0.33% for Investor Shares. Vanguard Selected Value Fund’s expense ratio is expected to change to 0.33% from 0.36%. The expense ratio for Vanguard Diversified Value Portfolio is expected to change to 0.28% from 0.25%.

Northern Trust Expands Collateral Management Services

Northern Trust is expanding its collateral management services for over the counter (OTC) derivatives trading. The new functionality will enable asset managers and institutional investors to outsource key aspects of regulatory compliance to Northern Trust and optimize collateral selection, according to the firm.

Northern Trust’s Margin Segregation Service will include new capabilities that streamline complex processes for meeting uncleared margin rules, such as undertaking industry-standard electronic settlement messaging and providing advanced collateral reporting. Clients can pledge assets from their trading account and place them into segregated accounts for each broker, thereby retaining their investments with a single asset servicing provider for optimal efficiency, consolidated recordkeeping and oversight. 

Additionally, Northern Trust has partnered with risk and collateral management services company AcadiaSoft to provide an outsourced solution for collateral optimization calculating clients’ initial margin obligations, issuing margin demands to clients’ brokers, and determining if and when margin is to be transferred.

With this service, clients will have the ability to optimize collateral selection, using algorithmic technology to identify their best assets available to meet regulatory eligibility requirements. It will allow only optimal assets to be deployed to meet margin obligations.  

“Our clients’ use of derivatives often falls within the threshold of heightened global derivatives regulation, requiring resource-intensive tasks to support compliance,” says Judson Baker, derivatives product manager at Northern Trust. “By outsourcing these complex and onerous functions, they can draw on our expertise and advanced technology – negating the need for costly investment in their systems. They can also minimize the value of their assets locked up as collateral by using our optimization solution.” 

Collectively, these capabilities may enable Northern Trust’s clients to meet their obligations under the European Market Infrastructure Regulation (EMIR), the United States’ Dodd-Frank Wall Street Reform and Consumer Protection Act, and equivalent global regulations.

These capabilities will be part of Northern Trust’s comprehensive range of collateral, derivatives and liquidity management solutions. Clients can access these services globally, either on a component basis or as part of a broader suite of collateral management solutions.

Vanguard Decreases Expense Ratios for International Funds

Vanguard has announced lower expense ratios for three international income-oriented funds.

The funds are the $1.6 billion Vanguard International Dividend Appreciation Index Fund, the $1.5 billion Vanguard International High Dividend Yield Index Fund, and the $1.9 billion Vanguard Emerging Markets Government Bond Index Fund. Vanguard also reported lower expense ratios on four externally managed active equity funds.

The 2019 expense ratios are as follows:

Fund Name

2018 Fiscal Year End Expense Ratio

2019 Fiscal Year End Expense Ratio

Change
(in basis points)

International Dividend Appreciation Index Admiral

0.25%

0.20%

-5

International Dividend Appreciation ETF

0.25%

0.20%

-5

International High Dividend Yield Index Admiral

0.32%

0.27%

-5

International High Dividend Yield ETF

0.32%

0.27%

-5

Emerging Markets Government Bond ETF

0.30%

0.25%

-5

Emerging Markets Government Bond Index Fund Admiral

0.30%

0.25%

-5

Emerging Markets Government Bond Index Fund Institutional

0.29%

0.23%

-6

Vanguard Selected Value Fund Investor

0.36%

0.33%

-3

Vanguard Windsor Fund Admiral

0.21%

0.20%

-1

Vanguard Windsor Fund Investor

0.31%

0.30%

-1

Vanguard Emerging Markets Select Stock Fund Investor

0.94%

0.93%

-1

Vanguard Explorer Fund Investor

0.46%

0.45%

-1


In addition to expense ratio changes previously reported this year by Vanguard in fund annual reports, aggregate savings to clients now totals $41.7 million across 50 fund and exchange-traded fund (ETF) shares. 

In the case of Vanguard Windsor Fund and Vanguard Selected Value Fund, the expense ratio reductions were a result of incentive/penalty arrangements. Vanguard aligns the interests of its external investment advisory firms with those of shareholders by adjusting an external adviser’s base fee up or down to reflect the fund’s investment performance relative to the total return of an appropriate benchmark over a 36- or 60-month period.

Compliance December 19, 2019

Congress Has Passed the SECURE Act

The Senate voted Thursday to approve appropriations legislation that has subsumed the SECURE Act, after the House approved the same measure on Tuesday.

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The retirement plan industry is hailing Congress for passage of the Setting Every Community Up for Retirement Security Act, better known as the SECURE Act, which is expected to be signed by the President as soon as Friday.

Technically, the SECURE Act has been incorporated into a broader 2020 fiscal year appropriations bill. On Thursday, the Senate voted 71 to 23 to approve the legislation. The House approved the same measure on Tuesday by a vote of 297 to 120.

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Through a laundry list of popular bipartisan provisions, the SECURE Act seeks to expand and modernize the defined contribution (DC) retirement plan system. Through the establishment of “open multiple employer plans,” or “open MEPs”, the SECURE Act is expected to expand access to workplace retirement plans for millions more full- and part-time workers, particularly small business employees.

The legislation also expands opportunities for workers to obtain guaranteed lifetime income products, increases the age at which required minimum distributions must be taken from retirement accounts and repeals the age limit for IRA contributors. Additionally, the SECURE Act will require that plan participants receive an illustration of how much monthly income their retirement savings will provide, which can help them plan to increase their retirement savings.

The SECURE Act also allows qualified automatic contribution arrangement (QACA) safe harbor plans to increase the cap on automatically raising payroll contributions from 10% to 15% of an employee’s paycheck, with the option to opt out.

“Our optimism that the SECURE Act would pass this year never wavered,” said Wayne Chopus, president and CEO of the Insured Retirement Institute. “Longer lifespans mean workers will have more years in retirement and will need a retirement financial plan that ensures they won’t outlive their savings. Greater access to lifetime income products within workplace retirement plans can provide monthly income for the life of a retiree.”

Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee (ERIC), said passage of the SECURE Act is a major accomplishment that will allow Congress to turn to other important retirement issues.

“ERIC looks forward to working with all interested parties in the new year to bring additional flexibility and modernization into the private retirement system,” Robinson says. “In particular, we look forward to updating the lifetime income disclosure rules to allow plan sponsors to continue providing disclosures that are specific to participants and beneficiaries; modernizing the 401(k) plan system through updating several provisions including the definition of a highly compensated employee and providing financial wellness through student loan debt repayment and emergency savings; and working with Congress to find a comprehensive solution to the multiemployer pension crisis.”

The Financial Services Institute (FSI) also quickly applauded Congress’ passage of the SECURE Act as part of the end-of-year spending package.

“The passage of the SECURE Act is a significant victory for Main Street Americans,” said FSI President and CEO Dale Brown. “We applaud Congress for passing this important measure to address the retirement savings crisis. Americans are living and working longer than ever before, and too many have inadequate savings as they enter retirement. Currently, 40% of private-sector workers do not have access to a workplace retirement plan. The SECURE Act will increase workers’ access to retirement savings and allow them to make contributions for as long as they are working. We urge President Trump to sign this legislation into law as quickly as possible.” 

Speaking with PLANADVISER just ahead of the Senate vote, Jamie Hopkins, director of retirement research at Carson Group, said this is indeed a big day for the retirement plan industry, but he wonders whether the small business community will benefit from the SECURE Act as much as some parties are anticipating at this early juncture.

“I’m more skeptical than most, particularly about the potential impact of the open multiple employer plan provision on small businesses,” Hopkins says. “We’ve been trying since the establishment of ERISA to help small businesses set up retirement savings plans—through very low-cost SEP and SIMPLE IRA plans, for example. Today, these options are already very affordable and very well-suited for the small business community, but they haven’t really moved the needle. I wonder whether access to open MEPs alone will help small businesses as much as some expect.”

According to Hopkins, the small business community in general perceives retirement plans of any type to be associated with complexity and risk. For that reason, it will require significant effort and investment from the retirement plan industry to help small business owners embrace open MEPs, or indeed any other type of retirement plan.

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