Compliance December 2, 2022

SEC Climate Disclosure Rules Find Republican Opposition in Both Houses

An SEC proposal to require certain disclosures related to climate change and carbon emissions is facing Republican opposition in the House and Senate.

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Reps. Bill Huizenga, R-Michigan, and Andy Barr, R-Kentucky, introduced legislation today that would prevent the SEC from requiring securities issuers to make disclosures about carbon emissions, unless the information is likely to be material to an investor. The bill is the Mandatory Materiality Requirement Act.

Huizenga and Barr are ranking members of subcommittees of the U.S. House Committee on Financial Services.

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Though the legislation does not explicitly mention items such as “climate,” “environment” or “greenhouse gas,” it would amend both the Securities Act of 1933 and the Securities Exchange Act of 1934 to require that any disclosure mandated by the SEC is material for investors’ investment decisions. It is intended to pre-empt an SEC proposal from March that public companies provide certain climate-related financial data and information on greenhouse gas emissions in their public disclosure filings.

Barr explained: “I am proud to be an original co-sponsor of the Mandatory Materiality Requirement Act in the House to ensure that the SEC is sticking to its statutory mandate and commend Representative Huizenga and Senator [Mike] Rounds [R-South Dakota,] for helping to lead the charge against woke climate policy in our financial markets and institutions.”

Rounds introduced similar legislation in September. That bill, which carries the same name, likewise does not make explicit mention of “climate,”, “environment,” or “greenhouse gas.” However, the bill has the same stated intent as its House companion, Rounds explained in a press release: “American businesses should not be used as a gateway to advance climate-change policy.”

In March, the SEC proposed a rule that would require public companies to disclose information about their “climate-related risks that are reasonably likely to have a material impact on their business.” The proposal would require public companies to disclose information about direct greenhouse gas emissions, indirect emissions produced as a result of electricity consumption and emissions from its supply chain. This rule has not been finalized and is not in effect.

Another related bill, proposed Monday by Senator John Boozman, R-Arkansas, called the Protect Farmers from the SEC Act, specifically takes aim at the provision to require greenhouse gas emissions to be disclosed by agriculture companies. Boozman’s bill would exempt agriculture companies from any future disclosure requirements. Unlike the other bills, Boozman’s does mention “greenhouse gas” in its text.

Senator Tom Cotton, R-Arkansas, proposed legislation on Thursday that addresses the U.S. Department of Labor regulation that would permit ESG considerations to be used by retirement plan fiduciaries. Cotton’s one-page bill would invalidate the DOL rule without replacing it with other legal guidance. In a press release, Cotton said that retirement plans should avoid, “ESG scams.”

 

Deals & People December 2, 2022

401(k) Robo-Adviser Blooom Shuts Services, Sells Tech to Morgan Stanley

A 401(k) robo-adviser with more than $5 billion in assets under management stopped servicing clients in November and has sold its technology to Morgan Stanley.

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A 401(k) robo-adviser that offered everyday 401(k) retirement savers a low-cost service to enhance their investments has shuttered its doors on clients while selling its technology to Morgan Stanley.

Blooom, based in Leawood, Kansas, posted a message on its website in November that it was shutting down its service “effective immediately,” but that the company was starting a “new chapter” that “will ultimately result in an enhanced offering in the retirement marketplace.”

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Morgan Stanley, meanwhile, has purchased the firm’s robo-adviser technology and brought on some of Blooom’s employees.

“To help bolster our retirement offering, we can confirm we bought components of Blooom’s technology in an asset purchase, while onboarding the Blooom team,” the spokesperson said in an emailed response.

The Kansas City Business Journal reported on November 18 that Blooom was shutting down its direct-to-consumer operations, but told the KCBJ it was not going out of business. On Thursday, RIA Biz noted that high-level staffers, including Chris Costello, CEO and co-founder, moved to Morgan Stanley. Costello’s LinkedIn profile lists him as an executive director at Morgan Stanley @ Work, the investment firm’s workplace financial solutions provider.

The firm declined to provide further details of the transaction. Morgan Stanley has been investing in its Morgan Stanley @ Work platform, most recently partnering with Carver Edison for expanded access to employee stock purchase plans.

Blooom executives and customer support team did not immediately respond to request for comment. The company said on its Q&A page that customers seeking an adviser would not be able to reach anyone as their advisers “will no longer be available during this transition period.”

Blooom reported having $5 billion in assets under management from clients who hired Blooom to manage their retirement plan investments for a flat annual fee, reportedly giving their credentials to the firm so its personnel could access these accounts. Those customers, according to a Q&A on Blooom’s website, are no longer getting those services and should revert back to their retirement plan holder to access their accounts. Blooom also said it had begun processing refunds and that clients should allow up to 10 business days to receive. The company did not say from what date refunding would start.

The Q&A notes that user credentials, such as IDs or passwords, will be permanently deleted, but that “Blooom will retain an archive of past transactions, correspondence, and other key information to meet its compliance obligations with the SEC.”

The firm also has language that appears to refer to the Morgan Stanley transaction, noting that Blooom “may transfer your contact and related client financial information, which is permissible under the terms of the client agreement and our privacy policy.”

It notes that “we or a future partner may be in touch with you in the future to discuss how to support you in achieving your long-term financial goals.”

Blooom has said its mission was to provide expert retirement help “to those previously overlooked by traditional financial advisers.” The platform provided a free analysis of a participant’s account to “identify unnecessary hidden investment fees, ideal diversification and investment risk.” If a participant signed up for Blooom’s robo-management, they would be charged a flat annual fee ranging from $125 to $295, according to a NerdWallet write-up.

Blooom had been successful in raising financing over the years, including from fintech venture capital firm QED Investors and Allianz Life Ventures, the VC-division of Allianz SE. In 2015, Blooom was among 10 firms given a Launch KC grant, which included $50,000 and 12 months of free office space in the city.

Robo-advisers have become an increasingly prevalent service for everyday retirement savers to get relatively low-cost investment guidance and management. Robo-advisers Wealthfront, Betterment, SoFi Automated Investment and Ellevest were among firms named by NerdWallet as the year’s best.

This June, the Securities and Exchange Commission said it charged Charles Schwab for “not disclosing that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions.”

Charles Schwab in a release said it settled the matter regarding certain historic disclosures and advertising related to Schwab Intelligent Portfolios between 2015 and 2018. The investment firm said it “neither admits nor denies the allegations in the SEC’s Order,” and that resolving the matter was in the best interest of clients, the company, and stockholders.” Part of the settlement included the subsidiaries retaining an independent consultant to review their policies and procedures relating to robo-adviser disclosures; advertising and marketing; and to ensure they are effectively following policies and procedures.

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