Compliance December 6, 2022

SEC and Goldman Sachs Settle for $4 Million for ESG Policy Infractions.

GSAM did not follow its own policies in selecting funds with ESG label despite appealing to those policies in promotional materials.

 

Reported by


Goldman Sachs Asset Management agreed in November to pay $4 million to the SEC to settle alleged violations of its own environmental, social and governance policies and procedures. GSAM did not admit or deny the material findings of the SEC.

GSAM created procedures as required by Section 206(4) of the Advisers Act and Rule 206(4)-7, which require a registered investment adviser to implement policies designed to prevent violations of the Advisers Act in their selection and monitoring of assets in portfolios with an ESG label.

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The company policies were written for two ESG mutual funds and one separately managed account strategy which GSAM advised.

The ESG SMA Strategy is offered to clients in SMAs advised by GSAM and has about $103 million in client assets. The two mutual funds in question are the International ESG Fund, which has a net value of $127 million, and the Emerging Markets ESG Fund, which has a net value of $8 million.

GSAM policies provided for a questionnaire to assist in the selection of investments in ESG mutual funds and the SMA. The questionnaire produced a numerical score, which was then weighted by industry. GSAM said in pitch books to clients that their investments were selected using this method starting in February 2018.

However, according to the SEC charges, GSAM was actually selecting investments by relying on previous research, and they did not apply the questionnaire results to most of the investments in the SMA until January 2020, nearly two years later, despite saying in promotional materials they had done so.

The previous research used was also not uniform between investments. GSAM sometimes used third-party data to which they applied the GSAM weighting and numerical score.

The questionnaires were also not kept in a centralized location, a violation of GSAM’s policies and something that hindered the SEC investigation, according to their report.

BNY Mellon paid a penalty of $1.5 million in May for misstatements and omissions in its statements related to ESG funds. The combination of the two actions led to a warning from Fitch Ratings in November that the SEC would be increasing enforcement on ESG funds and “greenwashing.” Fitch noted that these penalties can carry large reputational risk, especially if they occur repeatedly.
In Practice December 6, 2022

Plan Advisers May Help Boost Employee 401(k) Participation

Of plan sponsors with full employee participation, 80% work with an adviser to help design and manage their 401(k) benefit, according to new research from Morgan Stanley at Work.

Reported by



401(k) retirement plan sponsors who work with a plan adviser are likely to see better outcomes in employee participation than those without an adviser, according to research released Tuesday from Morgan Stanley at Work.

Of plan sponsors who reported full employee retirement plan participation, 80% work with an adviser, according to research from the investment firm’s retirement and financial wellness division. Of those companies with less than 25% eligible employees participating in their 401(k) offering, only 62% reported working with an adviser.

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“The dynamics of today’s economy have changed, with employers and employees alike juggling numerous competing financial needs,” Anthony Bunnell, Head of Retirement for Morgan Stanley at Work, said in a release. “It’s not surprising that plans with financial advisers are associated with more engaged employees, as a financial adviser can play a central role not just in managing the plan, but in helping employees navigate the markets and invest in their future.”

The most common reason plan sponsors said employees don’t choose to participate in their workplace 401(k) is that they want their full paycheck immediately (62%). The other reasoning is that they have other types of investment accounts (22%), or that they don’t see the value of a 401(k) plan (15%).

Among the 710 plan sponsors surveyed, their leading concerns about managing their 401(k) benefit package were fiduciary responsibility (26%), employee education (24%), and compliance and regulations (23%).

The majority of plan sponsors (62%) say they pay attention to legislative changes to retirement plans—though only 33% are receiving information about this area from their advisers. Meanwhile, 31% say they are not monitoring the regulatory space, and 7% saying they are sometimes monitoring it.

Another top concern for plan sponsors is protecting participant data, cited by 20% of those surveyed. Sixty-three percent of plan sponsors said they regularly review participant data with their retirement plan adviser, followed by 30% sometimes reviewing it, and 7% not reviewing it at all.

Within focus groups, researchers found that plan sponsors assume participant data security and monitoring is included in their plan.

“As legislation focuses more on participant data, working with plan sponsors to understand their requirements in this area will be key,” the researchers said.

When it comes to the education content being provided to participants, the majority (87%) said the content is engaging. When asked how to make it even more engaging, plan sponsors pointed to more topics related to individual financial stages (44%), content with digital tools (39%), and topics specific to life events (36%).

The Morgan Stanley at Work report was based on research and survey data from plan sponsors ranging from 20 to 3,000 employees. It was conducted by Rebel & Co. in the third quarter of 2022.

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