Products February 2, 2017

Investment Products and Service Launches

Charles Schwab Lowers Trade Commissions and Index Fund Fees; Symons Capital Releases Small Cap Equity Mutual Fund; Pantheon Targets DC Plans for Private Equity Strategies; and more.
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Charles Schwab Lowers Trade Commissions and Index Fund Fees

Charles Schwab announced that beginning February 3, 2017, it will reduce its standard online equity and exchange-traded fund (ETF) trade commissions from $8.95 to $6.95. Effective March 1, 2017, Charles Schwab will lower expenses for Schwab market cap-weighted index mutual funds to align with their Schwab ETF equivalents. Moreover, all investment minimums will be eliminated for these mutual funds, which will utilize a single share class.

On March 1, Schwab will also minimize expenses on the Schwab U.S. TIPS ETF and Schwab Fundamental Index ETFs. Pending shareholder approval, the Schwab Fundamental Index mutual funds will follow suit effective May 1, 2017, by eliminating all investment minimums, employing a single share class, and aligning expenses with those in the comparable Schwab ETFs.

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“Reducing online trade commissions as scale and technology lower our operating costs is a way to ensure our clients benefit from their commitment to us,” says Schwab President and CEO Walt Bettinger. “I am especially proud of our decision to eliminate investment minimums and employ a single share class in our market cap-weighted and Fundamental Index mutual funds—ensuring that every investor pays the lowest possible fees.”

Furthermore, Schwab is initiating a satisfaction guarantee policy. Simply put, clients dissatisfied with certain commissions, transaction fees or advisory program fees paid do the firm would be refunded for those expenses.

“Today’s consumers expect great value, a great experience, and a refund if they aren’t satisfied,” explains Bettinger. “We believe a modern investing experience should deliver on these expectations—period

Visit Schwab.com for more information, disclosures, and specific details.

NEXT:Symons Capital Releases Small Cap Equity Mutual Fund  

Symons Capital Releases Small Cap Equity Mutual Fund  

The Symons Concentrated Small Cap Value Institutional Fund (SCSVX) is an extension of the Symons Concentrated Small Cap Value composite. SCSVX will purchase stocks with market capitalizations of less than $3 billion and will hold fewer than 20 stocks across a broad sector allocation.

“As part of designing this strategy, and in an ever-changing environment where fees are being compressed, we wanted to create a fund whereby we believe there will be great demand in the small value asset class” says Michael P. Czajka, CEO of Symons Capital Management. “In particular, with the lack of available capacity in the small cap value space coupled with a good process and a clear differentiation from our peers, I truly believe this will be the strategy that makes Symons Capital Management a nationally known firm, side-by-side with some of the other great small cap value investment firms.”

Symons Capital Management’s portfolio manager and investment research team aims for long-term absolute returns and relative returns above benchmarks, with a focus on risk-management and downside protection over a full-market cycle.

“The small cap sector is an area where we believe our independent macro, quantitative and qualitative equity research can be used to good advantage to achieve long-term wealth accumulation,” says Czajka. “Typically, there is less published research available on such companies, which makes this a perfect strategy for us. I believe this strategy will be very successful not only with investment management consultants, but even more so with registered investment advisers who create asset allocation models utilizing mutual funds rather than ETF’s or index funds in this asset class.”

NEXT: Pantheon Targets DC Plans for Private Equity Strategies

Pantheon Targets DC Plans for Private Equity Strategies

Pantheon is introducing performance-based pricing to its private equity strategies targeting the defined contribution (DC) market.

The performance pricing option applies to the part of the portfolio invested in private equity and it’s accrued only when the performance of the private assets in the portfolio beats its benchmark, which is the S&P 500. Generally speaking, the firm says investors don’t pay for performance they did not experience.

“The innovative fee solution we are announcing today visibly aligns investors’ interests with Pantheon’s, addresses core plan sponsor concerns including costs and potential litigation, and it demonstrates the confidence we have in our ability to deliver strong returns to our investors,” says Kevin Albert, managing director at Pantheon.

For more information, visit Pantheon.com.

NEXT: John Hancock Overhauls TDF Suite

John Hancock Overhauls TDF Suite

John Hancock Investments has revamped its target-date funds (TDF) for the defined contribution (DC) market with new names and lower fees.

The John Hancock Multimanager Lifetime Portfolios, formerly known as John Hancock Retirement Living Portfolios, are designed to help manage longevity risk by following a glide path that begins with 95% equity exposure before gradually decreasing to 50% at the target retirement date. It then continues scaling down through the first 20 years of retirement until stabilizing at 25%. The portfolio management team implements the asset allocation strategy with a combination of active open-end mutual funds and other investments, tapping nearly 20 specialized teams.

The John Hancock Multi-Index Lifetime Portfolios, formerly known as John Hancock Retirement Living II Portfolios, are also designed to help manage longevity risk and follow the same lifetime glide path. Managers implement the asset allocation strategy with a combination of index-tracking exchange-traded funds (ETFs) and other investments to minimize the impact of expenses on portfolio returns. 

John Hancock Multi-Index Preservation Portfolios are designed for investors who want to minimize risk in the years leading up to retirement. Glide paths begin at 82% equity exposure which decreases to and stabilizes at eight percent upon reaching the target retirement date. John Hancock Asset Management implements the asset allocation strategy with a combination of index-tracking ETFs and other investments to minimize the impact of expenses on portfolio returns.

For more information, visit jhinvestments.com/targetdate.

NEXT: Vanguard Lowers Expense Ratios on 21 Fund Shares

Vanguard Lowers Expense Ratios on 21 Fund Shares

The financial services firm Vanguard says its clients saved almost $25 million after it lowered expense ratios for 21 individual mutual fund shares including three quantitative equity funds and six target-date funds (TDF)s.  

Last month, the firm reported lower expense ratios for shares of 35 funds representing aggregate savings of $13 million.

The expense ratio of the $6.6 billion Vanguard Strategic Equity Fund dropped three basis points to 0.18%, that of the $1.5 billion Vanguard Strategic Small-Cap Equity Fund dropped five basis points to 0.29%, and that of the $1.5 billion Vanguard U.S. Value Fund dropped three basis points to 0.23%. These funds are managed by Vanguard’s Quantitative Equity Group (QEG).

The firm’s six Target Retirement Funds (TRFs) saw their expenses drop by 1 basis point each. The expense ratios fell to 0.13% for both the Target Retirement Income Fund and the Target Retirement 2010 Fund, and to 0.14% for the Target Retirement 2025 Fund. Three institutional target-date funds—the $2.2 billion Vanguard Institutional Target Retirement Income Fund, the $2 billion Vanguard Institutional Target Retirement 2010 Fund, and the $6.3 billion Vanguard Institutional Target Retirement 2015 Fund—reported lower expense ratios of 0.09%.

For more information, visit Vanguard.com.

NEXT: Long Dollar Gold Trust Begins Trading

Long Dollar Gold Trust Begins Trading

The World Gold Council and State Street Global Markets, an affiliate of State Street Global Advisors, announced that the SPDR Long Dollar Gold Trust has begun trading on the New York Stock Exchange. GLDW seeks to track the performance of the Solactive GLD Long USD Gold Index, less fund expenses.

“The price of gold and the U.S. dollar have historically tended to move in opposite directions,” says Nick Good, co-head of the Global SPDR business at State Street Global Advisors. “By lessening the dollar’s potential impact on gold, GLDW seeks to provide investors the opportunity to realize the potential benefits of using gold as a strategic portfolio diversifier, while offering the ability to buffer against the potential adverse effects of a strong dollar on gold.”

The index combines a long position in physical gold and long dollar exposure against a basket of non-U.S. currencies. The organization notes that performance of the U.S. dollar against this currency basket is expected to increase or decrease the amount of gold held by GLDW. GLDW holds physical gold in the form of 400 ounce London Good Delivery bars stored in the custodian’s London vault, except when GLDW’s physical gold has been allocated in the vault of a subcustodian solely for temporary custody and safekeeping.

“GLDW is the first ETF listed in the U.S. backed by physical gold that is designed to hedge the movement of gold against the U.S. dollar,” says Joseph Cavatoni, principal executive officer of GLDW’s sponsor, and managing director USA and ETFs, World Gold Council.

NEXT: Cardinal Investment Advisors Adopts PFaroe Risk Management Platform

Cardinal Investment Advisors Adopts PFaroe Risk Management Platform

Cardinal Investment Advisors, a boutique consulting firm specializing in liability-driven investment experience, has adopted RiskFirst’s risk management platform, PFaroe.

This solution will allow the firm to optimize its clients’ portfolios in a liability-aware fashion, informing long-term strategies around glide paths, required cash contributions and the maintenance of credit balances.  

“Cardinal is committed to investing in tools and resources that help us to meet our key objective: optimizing the creation, implementation and monitoring of investment strategies,” says Scott Skornia, managing director, Cardinal Investment Advisors. “We have always looked at such strategies from a liability/risk perspective and PFaroe aligns perfectly with this view. The tool will be an asset to our offering; automating our reporting and allowing us to have all our data in one place—everything from the attribution of risk, all the way down to having access to underlying benchmark data. The system will bring greater levels of efficiency and streamlining to the business.”

Matthew Seymour, CEO, RiskFirst, adds: “Cardinal deals frequently with complex portfolios and equally complex liability structures, and is dedicated to delivering innovative LDI solutions and optimized portfolio strategies. Cardinal has historically created in-house the financial tools and analytics required to do this, with a reputation for developing best-in-class asset-liability models, so we are delighted that they have decided to bring in PFaroe to add value to their specialist offering for clients old and new.”

For more information, visit www.cia-llc.com/.

Client Service February 2, 2017

Going from Passage to Implementation for State-Run Plans

One of the first steps state-run plans for private-sector employees that have been passed are taking is issuing RFPs for recordkeepers and investment managers.
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A number of states have approved initiatives for state-run plans for private sector employees.

Once approved, what is the process to get these plans to implementation, and how long does it take?

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John Scott, director of retirement savings at Pew Charitable Trusts, who is based in Washington, D.C., tells PLANADVISER the devil is in the details. Sometimes the legislation has the details of the plan laid out, but some states will have to create a board to establish details of the plan. It depends on what the legislation says in a particular state.

Scott says the first step for plans just getting started will be to set up an administrative body. This may include some political appointees from the agencies directly involved and/or representatives from industry and employee groups. He speculates that within the state government, the administrative body will probably include someone from the State Treasury department and possibly a representative from the state’s public-sector pension. The state will have to set up a structure of governance and administration, Scott says. That may be in the bill, or the administrative body may have to establish documents.

The California Secure Choice Retirement Savings Act was signed into law last September. The California Secure Choice Retirement Savings Investment Board has already been established. The nine-member board is chaired by the State Treasurer and includes the State Controller, the Director of Finance, a small business representative, an individual with retirement savings and investment expertise, an employee representatives, a public member, and two additional members.

Ruth Holton-Hodson, senior policy adviser for health and retirement initiatives, based in Sacramento, tells PLANADVISER the first step they will take is to hire an executive director. They have received responses and will start interviewing people shortly; the hire may be someone from the private-sector or within the government.

Next, after approval by the board, they will issue a request for proposals (RFP) for consultants to help the state develop regulations and issue RFPs for a recordkeeper and investment managers. She says they may hire a recordkeeper to provide all services or do open architecture with a recordkeeper and also have third-party investment managers.

Scott says it is possible some states will assign someone in Treasury or from the public pension to make investment decisions, but he sees most plans outsourcing. “These are programs for private-sector workers, so having outside investment managers and recordkeeers gives credibility that this is completely apart from the state,” he says.

Holton-Hodson explains that California’s legislation just provides a framework for the plan in broad brush strokes. “Now we have to translate the legislation into regulations—going from the table of contents to precise content,” she says. According to Holton-Hodson, California officials will start this summer and it will take up to six months or more before the system is ready for implementation. “It will be a public, transparent process. Every stakeholder will have time to make comments.”

Holton-Hodson says California Secure Choice will be forming a business and advisory committee of employees and representatives to figure out the most effective way to design the program so it meets everyone’s needs. As part of the process, it will develop an investment policy. The Secure Choice statute does require that the program invest in either U.S. Treasuries or something similarly safe up to the first three years, she notes.

NEXT: Communication and implementation
 
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California Secure Choice is already communicating with employers. For one thing, Holton-Hodson explains, there are vendors telling employers that they have to comply now with the mandate to either provide a plan or participate in Secure Choice, and they are trying to sell product. Secure Choice is reaching out to business associations, the employment develop department and lobbyists that represent business associations to inform employers that the mandate is effective one year after implementation, which is expected to be in late 2018. The Secure Choice home page also says this.

She adds that once they have an idea of how the program will work, they will reach out to employers and employees about specifics.

Expecting implementation in late 2018 means the process from approval to implementation will take two years. This is similar to other programs that have been passed. The Oregon legislature passed its program in June 2015 and has recently announced rollout plans. Washington state approved its program in May 2015, and it is up and running as of 1/1/17. The Illinois program allows for a two-year implementation. 

According to Holton-Hodson, although the California Secure Choice plan will be implemented in 2018, they are scheduling a phased rollout to employers— late 2019 for employers with 100 or more employees, late 2020 for employers with 50 or more and 2021 for everyone else. This is similar to how Oregon announced plans to rollout its program, Scott notes.

He feels this is the best approach, and hopes other states will take their time. They can learn from each rollout what to do differently in subsequent rollouts. In addition, he says, “The interesting thing to watch going forward is the extent to which states learn from each other. The first states can provide lessons for others. To the extent states can be as consistent as possible, they will be more efficient not only in operations but for employers that operate in several states.”

Holton-Hodson suspects that between late 2018 and late 2019, the Secure Choice program will get some participating employers voluntarily. “We will say we are open for business and hope employers will find it attractive,” she says. “A study found 75% of small business believe it will be effective for them.”

Holton-Hodson adds that Secure Choice is simple and exempt from the Employee Retirement Income Security Act (ERISA), so employers have no liability. Employers don’t have to vet providers or benchmark fees. And the state will draft materials for employers to give to employees.

Lastly, she notes that California Secure Choice’s process is open and transparent. Anyone who wants to follow and comment can go on its website and sign up to receive alerts.

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