DWS Group Launches First S&P 500 ESG ETF for US Investors: Portfolio Products

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The DWS Group has expanded its ESG product lineup with the launch of Xtrackers S&P 500 ESG ETF (SNPE), the first such ETF available for U.S. investors. (UBS launched a similar product for European investors in April.)

The underlying Index seeks to target 75% of the float market capitalization of each Global Industry Classification Standard Industry Group within the S&P 500 Index, using an ESG score as the defining characteristic, according to the fund’s prospectus.

“By bringing this to the market we’ve given investors the ability to put ESG at the core of their portfolio where we see investing trends heading,” said Luke Oliver, DWS head of index investing, Americas, in a statement. The fund has an expense ratio of 0.11%.

“We’ve priced it as a core holding and that speaks to the DWS commitment to ESG. This ETF was designed so investors can use it in place of core benchmarks,” said Oliver.

The ETF excludes S&P 500 companies that are involved in the production or sale of tobacco or are engaged in the business of “controversial weapons,” which it lists as cluster weapons, landmines, biological or chemical weapons, depleted uranium weapons, white phosphorus weapons and nuclear weapons, in its prospectus. 

Also excluded are companies that fall within the bottom 5% of the United Nations Global Compact score ranking, or within  the lowest 25% of ESG scores from each GICS Industry Group.

Principal Introduces Its First Interval Fund

Principal Global Investors launched its first interval fund, which is a type of closed-end fund that provides investors exposure to less liquid investments while repurchasing a percentage of investor shares quarterly. 

The Principal Diversified Select Real Asset Fund invests primarily in private real assets, including infrastructure, natural resources, and real estate and conducts quarterly repurchase offers of 5% to 25% of the fund’s outstanding shares as net asset value. (A higher level of repurchase offers can be allowed by the fund’s board of trustees.)

“Throughout 2019, we have encouraged clients and investors to re-evaluate risk within their portfolios. Offerings like DSRA are designed to help investors address market uncertainty and volatility,” said Mike Beer, executive director of Principal Funds.

According to Principal, the fund’s managers take a longer term approach and avoid fire sales of assets at cheap prices during times of sudden, massive redemptions, which can help boost returns and investors gain access.

The new fund is available in three different share classes:

• A shares (PDSRX), minimum $25,000; 3.36% net expense ratio, 5.75% maximum sales charge

• I shares (PDSKX), minimum $100,000; 3.06% net expense ratio

• Y shares (

  PDSYX

  ), minimum $100,000 2.85% net expense ratio

Eaton Vance Announces Strategic Initiative Within Parametric Unit

Eaton Vance Corp. announced a strategic initiative within its Parametric Portfolio Associates LLC (Parametric) and Eaton Vance Management (EVM) investment affiliates to strengthen its rules-based, systematic investment strategies, customized individual separate accounts and wealth management solutions. 

 The initiative has three principal components:

• Rebranding EVM’s rules-based, systematic investment-grade fixed income strategies as Parametric and aligning internal reporting consistent with the revised branding;

• Combining the technology and operating platforms supporting the individual separately managed account (SMA) businesses of Parametric and EVM; and

• Integrating the distribution teams serving Parametric and EVM clients and business partners in the registered investment advisor (RIA) and multi-family office (MFO) market.

Based on assets under management and fee revenue for the fiscal quarter ended April 30, 2019, $39.8 billion of systematically managed fixed income assets and associated annualized management fee revenue of $70.1 million will, over a transition period, transfer from EVM to Parametric.  

On a pro forma basis, Parametric’s managed assets will increase to $285.0 billion and its annualized management fee revenue will grow to $462.1 million, representing approximately 61% and 31%, respectively, of Eaton Vance’s consolidated totals as of and for the fiscal quarter ended April 30, 2019. 

Investments to support the company’s growing individual SMA business and expanded distribution in the RIA/MFO channel are expected to be offset by increased revenue growth and cost savings resulting from greater operating efficiencies.

“By simplifying our brand architecture, strengthening our SMA operating infrastructure and expanding our distribution reach into the RIA and multi-family office marketplace, we expect to drive accelerated business growth for years to come,” said Thomas E. Faust Jr., Eaton Vance chairman and CEO.

The strategic initiative being announced today will be implemented over the balance of 2019 and early 2020. Eaton Vance does not expect the initiative to result in reduced headcount. 

Oranj Unifies Trading and Rebalancing Technology Under a Single Platform

More than two years after Oranj acquired a majority interest in the TradeWarrior trading and rebalancing technology, the company has fully integrated TradeWarrior within the Oranj platform at no additional cost.

During the interim, Oranj fired the former CEO of TradeWarrior who subsequently sued; Oranj countersued; and now both parties appear to be moving on.

“Rebalancing is an important and powerful tool for advisors and often times it can be an expensive luxury some advisors don’t deem necessary. Advisors no longer have to choose between cost and convenience,” said David Lyon, founder and CEO, Oranj. 

With this integration, advisors formerly using the legacy TradeWarrior technology will have access to Oranj’s full suite of modern capabilities including account aggregation, digital onboarding, a fully redesigned investor portal, and the diverse model marketplace. They will also benefit from enhancements Oranj has added to the rebalancing technology, including support for FIX trading direct to the custodian, additional order types, such as limit orders, and thinly traded funds, advanced cash management and account-level security equivalents.

Apex Clearing Launches Crypto Platform for Brokers, Advisors

Apex Clearing Corp. and Apex Crypto have launched a cryptocurrency platform that provides broker-dealers and financial advisors a way to introduce digital currency trading into their clients’ portfolios.

The platform, available to all Apex clearing clients, allows crypto assets to be held in separate accounts and investors to transition between trading equities and trading cryptocurrencies in just a few clicks.

“Our integration with Apex Crypto helps financial firms give their clients a streamlined way to invest in a wider variety of asset classes that feels like part of their core portfolio, while still being handled on a separate platform for regulatory purposes,” said Bill Capuzzi, CEO at Apex Clearing, in a statement.

The platform currently offers access to four crypto coins — Bitcoin, Bitcoin Cash, Ethereum and Litecoin — and is available to investors in 40 states and the District of Columbia, with additional states expected to join in the future.

”It’s never been easier to buy or trade cryptocurrency,” said Edward Haravon, chief operating officer at Apex Crypto.

Overstock’s tZero Launches Mobile App for Digital Currencies

Overstock’s subsidiary tZero, a cryptocurrency-focused alternative trading system, has introduced a crypto app that allows users to buy, sell and hold digital currencies efficiently and securely, directly on their mobile phone.

The  launch supports Bitcoin and Ethereum trading and is compatible with iOS devices, with Android compatibility coming soon. The app includes a Private Key Recovery System, which allows funds to be restored if a user loses his or her private keys or smartphone.

”Wth tZero’s Private Key Recovery System, your digital coins are truly held by you, in your wallet, rather than on an exchange in a pot with other fungible tokens,” said Patrick Byrne, Overstock.com founder and CEO, in a statement.

“Not only is this more secure (if your coins are held in your wallet and not on an exchange, people cannot steal your tokens by hacking an exchange), but in addition, it is more true to the cypherpunk ethos of decentralization through cryptography.”

Health Savings Administrators Launches Investor-Focused HSA

Health Savings Administrators, an HSA provider, has introduced the Investor Focus HSA , which has a curated lineup of 42 funds from Vanguard and Dimensional.  

Among the 42 funds are 12 U.S. equity funds, one sector equity fund, 14 allocation funds (including several target date funds), seven taxable bond funds and one money market option. Expense ratios are 25 basis points for active funds and 10 basis points for passive funds, for an overall weighted average of 11 basis points compared with a 47-basis-point weighted average cited by Devenir Research 2018 Year-End HSA Market Report. The funds have a average Morningstar rating of 3.96 out of five stars.  

CircleBlack Integrates RightCapital Into Its Platform

CircleBlack, a wealth management platform for financial advisors, has integrated RightCapital, a next-generation financial planning tool that provides advisors with the ability to create custom, comprehensive financial plans, into its platform.

Advisors who use RightCapital to help clients with financial and tax planning will be able to pull in daily account information and holdings data through the CircleBlack platform, allowing them to work more efficiently and deliver real-time information to their clients.  

“The integration allows seamless movement for the advisor between a client portfolio on CircleBlack and their plan on RightCapital without the advisor having to search or open multiple tabs,” said John Michel, CEO of CircleBlack.

CircleBlack’s technology is designed to give advisors a complete 360-degree overview of every client’s portfolio, reporting, billing and rebalancing in one easily accessible location — and deliver actionable intelligence that can build trust between advisors and clients.

RightCapital’s financial and tax planning software helps advisors create robust retirement plans using advanced Monte Carlo simulations, optimize Social Security, offer tax-efficient drawdown strategies and Roth conversions, and manage their clients’ tax liabilities, budgets and debt pay-off strategies. 

— Check out last week’s portfolio product roundup here:  MSCI Launches Climate Change Indexes: Portfolio Products.

Merrill Adds Envestnet Service for UHNW Clients

(Photo: AP)

Envestnet | Tamarac has formed its first wirehouse partnership and will provide 200 Merrill Private Wealth Management teams and their clients with its portfolio management and reporting solutions.

Advisors in these teams can access Envestnet | Tamarac’s portfolio analysis, reports on performance metrics and a dashboard with details on assets held at other financial institutions.

The firms have started to onboard this data and set up servicing for an initial group of 1,000 MPWM clients.

“We are pleased to be able to offer Tamarac’s … solution to our ultra-high-net-worth clients with complex needs,” according to Don Plaus, head of MPWM.

“This comprehensive new client report will aggregate asset allocation and performance across all of the client’s investments, regardless of where the assets are held,” Plaus explained. “It brings our reporting to the next level and is another demonstration of our commitment to helping make our clients’ lives easier.”

The Tamarac arm of Envestnet aims to help advisors with MPWM “offer aggregated performance reporting to clients with complex financial portfolios,” Envestnet said in a statement.

“Our technology’s unsurpassed capabilities will help provide comprehensive client reporting, regardless of where the assets are held, enhancing the experience of Merrill’s clients,” according to Andina Anderson, managing director of Envestnet | Tamarac.

Related on ThinkAdvisor:

Harness Wealth Rolls Out Advisor Matchmaking Service for Gen Xers

Harness Wealth, a New York-based wealthtech business that provides individuals access to  financial advice, began offering its platform of services to the public this week.

The platform will focus mainly on Gen X mid-career professionals with high earning potential, a group that it said in an announcement has been underserved by existing providers.

Harness Wealth was founded by David Snider, who serves as CEO, and Katie Prentke English, the chief marketing officer.

Snider was previously chief operating officer and chief financial officer at Compass, a real estate technology company. English was chief market officer at Nutmeg, a European digital investment advisor.

Harness Wealth’s platform uses a proprietary algorithm that takes the current and future needs of clients and pairs them with advisors who are deemed best suited to address clients’ opportunities. The firm said it does not charge clients for using the service.

The firm noted that it conducts extensive due diligence on prospective advisors, involving some 120 attributes. It said it takes a minority percentage of the advisor’s standard fee for clients it refers. The advisory network includes financial advisors, CPAs and trust and estate attorneys across the U.S.

Harness Wealth has been working with clients on an invitation-only basis since the beginning of the year, the firm said in the announcement.

“Whether it’s managing equity compensation, an inheritance, or family estate planning, there is an urgent need for individuals to get access to better holistic advice,” Snider said. “We built this business to provide that.”

Harness Wealth said that it chose to direct its services to Gen X consumers rather than millennials because it found the former underserved even though Gen Xers are expected to command $22 trillion in total assets by 2030, compared with millennials’ $12 trillion.

It said its own recent survey found that Gen Xers want a human/tech hybrid solution for their financial planning. The survey showed that those who managed their finances with a financial advisor were nearly twice as happy with their solution as those who self-managed, and 90% believed that digital functionality is an important part of the solution.

“More than ever Gen X individuals are in need of good financial planning,” English said. “They are transitioning into their peak earnings, many have more complex family needs with both children and aging parents to support, and they are going to be the largest beneficiary of the biggest wealth transfer ever over the next 10 years.”

Harness Wealth’s announcement said it had assembled a team of entrepreneurs, financial service veterans and industry experts, including engineers from Kensho, TD Ameritrade, Oscar Health and Goldman Sachs.

Among its investors are Bain Capital Ventures, Sinai Ventures and Marc Benioff’s family office. Its advisory council includes Voya Financial’s former CEO Maliz Bean and John Koskinen, a former Internal Revenue Service commissioner.

— Check out 3 Generations, 3 Views on Retirement: Wells Fargo on ThinkAdvisor.

Financial Engines Launches New Service for 401(k) Plan Participants

Ric Edelman. (Photo: Melanie Waddell/ALM)

Financial Engines, the workplace division of Edelman Financial Engines, has launched an advisory service to help employees decide what should be done with job-based benefits such as 401(k) plan assets when they leave a job.

Under the service, known as Fiduciary Distribution Review, departing employees will be provided one-on-one meetings with a Financial Engines financial planner to discuss retirement plan distribution choices, in-plan income options and separation benefits.

“There is a lot of confusion and a general lack of awareness among employees about their 401(k) distribution options when they retire or change jobs,” said Ric Edelman, co-founder and chairman, financial education and client experience for Edelman Financial Engines, in a statement.

Those employees can withdraw money from their 401(k) accounts, but they’ll owe taxes on the distribution and a 10% penalty if under the age of 59-1/2; move the assets into a rollover IRA; or leave the funds in their 401(k) plan, which could likely charge lower institutional-level fees for investment options than those available in a rollover IRA. They also may have the option of moving the assets into the 401(k) plan of a new employer.

“There can be huge consequences from making the wrong decision,” Edelman said, “ranging from taxes and penalties to higher fees and risky or poor performing investments.”

Many employees aren’t even aware of the options available to them. According to a survey of 1,071 individuals between ages 35 and 65 released by Financial Engines, 42% were unaware they could keep assets in a 401(k) plan even after leaving a job and 28% didn’t know the potential tax liabilities and penalties if they choose certain distribution choices for those assets. Fifty-one percent were unaware that they might have the options of a reverse rollover, moving funds from an IRA account into an employer-sponsored 401(k) plan if their new employer allowed it.

Among those who withdrew money from a 401(k) before their retirement, slightly more than one-quarter got no information or help from any resource, but nearly 80% of those who consulted a financial advisor said they felt more confident about their distribution strategy.

‘Not understanding your distribution options can harm your ability to reach your retirement goals,” said Edelman. “Often leaving the money with your old employer is the best choice.”

The Fiduciary Distribution Review extends the financial wellness services that Financial Engines already offers defined contribution plan sponsors and their employees. It provides departing employees private one-on-one meetings with a Financial Engines financial planner via phone or in person that can last as long as is needed to address the complexity of an employee’s situation, Edelman tells ThinkAdvisor.

The service is available at no additional fee for plan sponsors who are current or future clients of Financial Engines or their employees and it’s included in the premium advice services that employees can choose for an additional fee.

Soon after private equity firm Hellman & Friedman, which owned a majority interest in Edelman Financial Services, announced in late April 2018 that it was acquiring Financial Engines and merging the two firms, financial advisor and blogger Michael Kitces wrote that the merger portended “the beginning of the end of the 401(k) rollover bonanza. Retirees would stick with the Edelman Financial advisor they had been working with for their existing 401(k) plan rather than find a new one in retirement,” Kitces explained.

He says the firm’s Fiduciary Distribution Review doesn’t appear to be such a catalyst because it is offered at the moment of a potential rollover, not before. “The real challenge [for other advisory firms] will come if/when/as Financial Engines can make Edelman advisors available more directly to plan participants … such that by the time they’re ready to roll over, they’re already receiving ongoing financial advice from their Edelman advisor within the plan in the first place.”

Whether that happens remains to be seen. In the meantime, the service can help employers boost morale among employees who remain with the company, reduce employee turnover and retain 401(k) assets, which can help in plan sponsors’ fee negotiations with plan administrators and asset managers, says Edelman.

— Related on ThinkAdvisor:

The Advisor Compliance Issue That's Bigger Than Reg BI

Beth Haddock

The biggest compliance issue facing advisors isn’t Reg BI. It’s cybersecurity. Protecting clients’ and firms’ confidential information from a nightmare breach is critical — and urgent, says attorney and compliance expert Beth Haddock in an interview with ThinkAdvisor.

A 20-year-plus veteran of running big firms’ compliance departments, she has helmed her own compliance consultancy, Warburton Advisers, in New York City since 2014.

Haddock’s fresh views breathe life into the essentially juiceless area of financial services compliance: For instance, the frequent industry speaker argues that by delivering a return on the firm’s investment, a compliance department can change from being a cost center to something of a profit center.

In the interview, Haddock, whose clients include fintech companies, BDs and financial advisors, discusses, among other issues, her take on Reg BI and Warburton’s Hollywood-produced training that employs virtual reality to teach compliance regs.

ThinkAdvisor recently interviewed Haddock, on the phone from New York. The author of “Triple Bottom-Line Compliance” (Advantage Media Group 2018), she was chief compliance officer at AXA, Brown Brothers Harriman and Guggenheim Investments. In our conversation, the attorney stresses why advisors need to become more involved with the crucial issue of cybersecurity.

Here are highlights of our interview:

THINKADVISOR: What’s the biggest compliance issue facing financial advisors and firms today?

BETH HADDOCK: Data security, and data ethics and governance: How you collect data, how you use and store it, the parade of regulatory requirements. It’s everything from privacy, the security of advisors’ business information and investor information to using the information you collect in order to grow your business.

What differentiates data security from the concept of data ethics and governance?

Data security is chiefly about the nuts and bolts from an IT perspective. Data ethics and governance is about making a good business judgement as to, for example, how much in the way of resources you’re going to put toward [the tech and data security].

What’s part of that decision?

Will you have a personal server? Are you going to trust the cloud? These are the issues advisors have to decide about. It’s: How much risk do you want to take, and how much do you want to protect your clients, your reputation and your brand — because if you have a breach, it’s pretty disruptive to your business.

This is a whole additional area that RIAs and FAs have to worry about beyond being an advisor to their clients, isn’t it?

Yes — because it’s new and because it’s technical. If you’re an experienced advisor, you didn’t grow up having to think about this for your practice.

What’s the solution?

RIAs have to be educated on the technology rather than outsourcing it 100% and not really thinking about it. They need to be aware and make sure it’s on their radar. Second, they have to consider multiple sources for getting help. One of those would be having an IT person on retainer or, when they’re hiring a COO, making sure that person has a tech background. That will [provide] in-house expertise.

So is that all there is to it?

No. This isn’t a one-and-done. You have to look at data governance the same way you [tend] the investments in an investment portfolio.

What’s a big obstacle to acquiring technology and data security?

If, for example, you’re an independent RIA, you may not have the wherewithal to acquire excellent smart technology when it comes to cybersecurity or IT expertise. It’s really hard for advisors to be at the same level as big financial institutions.

But they need to make some sort of commitment. What should they do?

There are lots of vendors out there. It’s a matter of getting smart and figuring out what makes sense from a resource perspective. And it’s doing due diligence so you know that the tech vendor [you decide on] will protect your information from a breach and isn’t going to share it. You need to know that the whole infrastructure is safe.

About the SEC’s Reg BI: What’s your initial reaction?

We have to digest those 1,800 pages! I expect there’ll be a lot of interpretation over the next months and additional guidance coming out. But I do think it’s an opportunity for advisors — including dual registrants — to differentiate themselves from broker-dealer [advisors]. With Reg BI, broker-dealers don’t have to meet the fiduciary requirement that RIAs have to meet.  So that can be an advantage for [RIAs].

Please elaborate.

As [the Financial Industry Regulatory Authority] starts to change its [rules] and we get more interpretation of Reg BI, over the long run we’re going to be in a better place. The consumer will be more protected because with Reg BI, the proprietary-product momentum and pushing that was going on in the broker-dealer world should [likely] be eliminated.

But Reg BI may confuse investors who can’t discern between RIAs and BD FAs and don’t want to read fine-print disclosures, which they can’t comprehend anyway.

That’s a hard one because I do think it’s confusing. In Europe and other jurisdictions, there’s just one standard. The multiple standards in the U.S. aren’t well understood by the investor. So if I were a consumer doing an IRA rollover, I’d look for a registered investment advisor or a dual registrant.

Do you think there should be a single standard in the U.S.?

I can see the benefit to that, absolutely.

What are your thoughts about the demise of the Labor Department’s fiduciary rule?

It was a good result because having a compliance process that’s practical was definitely not what the DOL rule was. It wasn’t a good fit with the business. I wasn’t a big fan of it. Certain requirements weren’t efficient: They were the product of a regulator that didn’t understand the industry or securities regulations. I like to see compliance controls that are efficient, make sense and work with the business that has to follow them.

What’s your philosophy about the role of a compliance department?

Every compliance department should protect the organization and the brand but also deliver a return on investment to help build the business. [My firm] offers a compliance ROI assessment program that helps the department show its value-add for the business.

What’s your opinion of compliance training in general?

Much of it is more like academia. It’s fairly rote. People [receiving it] get bored and don’t pay attention or spend a lot of time with it and so, aren’t getting much value.

What sort of training, then, does your firm offer for, say, FINRA and SEC requirements?

I’m a big advocate of using behavioral incentives. [For example], we have micro-training: five-to-seven-minute [dramatized] vignettes that show [lessons learned].

Please explain.

It’s an edu-entertainment software program we [commissioned] that was created by people in the entertainment industry in Los Angeles. The producer, director and all the actors aren’t academics or corporate folks.

What does this tool comprise?

We [employ] virtual reality [for instance]. So, in order to watch, the advisors put on cardboard VR glasses. If you’re a compliance officer and want to roll out training for your advisors, they’ll get, in short bites, the technical regulations as they watch the vignettes. That’s more practical in relation to an advisor’s life.

Any other behavioral incentives that you use?

We’ve gamified the training, where the advisor gets to pick the ending. It’s [fairly] lighthearted, and there’s periodic humor to keep you on your toes. But compliance is a serious topic, so we keep it mostly serious.

— Related on ThinkAdvisor:

Turn Data Into Action: Elevating the Digital Advisor-Client Experience

Overview

 

On-demand Webcast

Cost: Complimentary

Sponsored by:

 

New digital technologies – social, mobile, analytics and cloud – continue to create fundamental shifts in client and advisor attitudes, behaviors, and relationships. Focus is often put on improving direct-to-consumer touchpoints, however, the majority of the client experience still happens directly with an advisor, not on an app or via a client portal. When you understand how to turn data into action, you can develop a better omnichannel digital experience for your clients.

Join this complimentary webcast to discover how to create an effective advisor-client experience journey in an increasingly digital world. You will learn how to:

• Digitize the advisor-client journey for your organization
• Implement advisor engagement channels to meet client demands
• Run a data-driven digital selling program at enterprise scale

REGISTER NOW!

Speakers:

Marcin Grobelny | Director of Professional Services | Hearsay Systems

Marcin Grobelny leads the Hearsay Professional Services team focused on program management, product implementation, system integrations, and solutions that solve complex business problems and drive business value for Hearsay Customers. Prior to Hearsay, Marcin led Professional Services at GoodData where he built robust business applications featuring predictive analytics, machine learning, simulations, and recommendation engines helping end users with strategic business decisions. Marcin earned his M.B.A from the University California, Berkeley.

Social Security, Postal Service Using Outdated ID Checks: GAO

(Image: iStock)

The Social Security Administration and the U.S. Postal Service are among government agencies using an outdated identity verification method that makes citizens vulnerable to fraud if their online data is stolen in cyber breaches, according to a new Government Accountability Office report released Friday.

The Centers for Medicare and Medicaid Services, the Department of Veterans Affairs, the Social Security Administration and the U.S. Postal Service are using an older verification method that relies on questions generated by credit rating agencies, according to the report. This method was deemed outdated in 2017, after the Equifax breach and others compromised the data used to answer those questions, according to the GAO.

The report, Data Protection: Federal Agencies Need to Strengthen Online Identity Verification Processes, found that these four federal entities give individuals access to their online portals with questions on information found in their credit files.

In all, the GAO looked at six federal agencies’ practices for identity verification.

The Internal Revenue Service and General Services Administration had ceased to use what is seen as faulty knowledge-based verification, the GAO found. However, CMS, the VA, SSA and USPS still do to varying extents.

In recent data breaches such as the 2017 Equifax breach, the knowledge-based information submitted in response to the offered questions proving identity could be fraudulently used.

Indeed, it is this post-breach risk that, in 2017, caused the National Institute of Standards and Technology to issue guidance that basically prohibits federal agencies from using knowledge-based verification for their more sensitive applications, the GAO report noted.

“Until these agencies take steps to eliminate their use of knowledge-based verification, the individuals they serve will remain at increased risk of identify fraud,” the report stated.

Sen. Elizabeth Warren, D-Mass., a member of the Senate Banking Committee and presidential candidate; Rep. Elijah Cummings, D-Md., chairman of the House Committee on Oversight and Reform; and Sen. Ron Wyden, D-Ore., released the report, dated May 2019.

The General Services Administration and the Internal Revenue Service have started using “alternative methods for remote identity proofing for their Login.gov and Get Transcript services that do not rely on knowledge-based verification,” the GAO report stated.

However, even though the VA has started using alternative methods, it still depends on the old knowledge-based verification for some people, the report said.

The GAO wants the practices improved and wants progress reports from the CMS, USPS, VA and SSA mandated by the Office of Management and Budget.

Warren, Wyden and Cummings have already written multiple times to the heads of the agencies using outdated methods asking them why they hadn’t updated their online portal entry methods and when and how they intend to do so, according to a statement they issued.

In addition, Warren and Cummings reintroduced the Data Breach Prevention and Compensation Act with Sen. Mark Warner, D-Va., and Sen. Raja Krishnamoorthi, D-Ill., on citizens’ data and agency accountability. The bill, unveiled in early May, uses some of the GAO reports’ findings.

“It is troubling that almost two years after the massive 2017 Equifax data breach federal government agencies continue to use outdated identity-proofing methods that put citizens at increased risk of identity theft,” the lawmakers stated. “We need to do more to prevent these kinds of breaches, and the government needs to be better and smarter about protecting citizens.”

— Check out GAO Calls for Tougher Rules on Consumer Reporting Agencies on ThinkAdvisor.

Pershing Adds Products to Help Indie Advisors Capture Latin American Market

Pershing’s Dounia Brown (left), Joel Hempel, Rich Calvario and Victor Nieves discuss growth plans for advisors working with Latin Americans at Insite on June 12, 2019.

BNY Mellon’s Pershing is giving independent advisors and broker-dealers in the U.S. more tools to grow their booming business with Latin American investors, a market largely cornered by the wirehouses.  

The clearing and custody firm said Wednesday that it rolled out 11 Lockwood Offshore Asset Allocation Portfolios for investors in Argentina, Brazil and Mexico. In the fourth quarter, it will launch Offshore Flex, a mutual fund program for both fee- and commission-based advisors.

The news was announced at its Pershing Insite conference in Phoenix, which has over 2,000 guests — including advisors from 20 countries. The event’s agenda features three sessions on Latin America.

“As more trusted advisors move into the independent model, there is an opportunity for us all [to capture] some of the $200 billion in managed assets in Latin America — most of which is at the wirehouses,” Lockwood Chief Operating Officer Joel Hempel said during a panel discussion.

Plus, Pershing research has found that 80% of advisors with non-U.S. clients are at the wirehouses.

Latin American assets on Pershing’s platform have jumped over 35% since 2016, the firm says, and topped $90 billion in April 2019.

“We see continued growth in offshore assets on our platform, with the fastest growth coming from Latin America,” according to John Ward, managing director of global client relationships at Pershing.

Hempel says Latin American investors “continue to allocate a significant portion of their investments to domestic fixed income vehicles.” The 11 Lockwood Offshore Asset Allocation Portfolios can help these clients “improve global diversification and portfolio risk management.”

The new mutual fund and ETF program, OffShore Flex, will include offshore funds from different fund families for advisory firms and broker-dealers with fee-based and commission-based programs. It will not have program minimums, short-term holding periods or ticket charges.

Advisor Group Adds Financial Planning Tools to eQuipt Platform

Advisor Group has added new financial planning capabilities to its eQuipt platform for advisors affiliated with its four broker-dealers, the firm announced during its yearly wealth management symposium.

The offering, eQuipt for Financial Planning, enables the delivery of financial plans and offer consulting services to clients across one-time, periodic or ongoing client engagement strategies.

The eQuipt digital client onboarding and account management platform was launched in November. It brings together different systems, including those of its clearing partners, advisory platforms, CRM and account resources.

Features like multiple payment options and digitally enabled new-client onboarding are expected to drive growth for Advisor Group. Leveraging eQuipt FP, financial professionals can leverage a wider range of clients, including those with needs like estate and divorce planning or debt management.

Additionally, eQuipt FP includes a payment platform powered by Stripe, a third-party payment processor, along with integrated compliance tools like check log, plan storage, contracting, and disclosure delivery.

“The world is changing, and the ways in which financial advice is delivered are constantly improving,” Matthew Schlueter, Advisor Group’s president of Wealth Management Solutions, said in a statement. “As technology evolves, we are investing in wealth management tools and platforms to support the growth and success of our advisors. In rolling out eQuipt for Financial Planning, we re-examined the client life cycle, incorporating advisor feedback, and reimagined the experience to dramatically improve the end-to-end process for both clients and advisors.”

— Check out Advisor Group Rolls Out Digital Onboarding System on ThinkAdvisor.

Personal Capital Launches High-Yield Savings Account

(Image: Shutterstock)

Personal Capital, one of the largest digital wealth managers, has introduced a high-yield FDIC-insured savings account that is available to current clients and non-clients.

Personal Capital Cash has no minimum balance and an annual percentage yield (APY) of 2.30% for non-clients. Clients get 2.35%, which is 20 basis points above the 10-year Treasury yield as of the market close on Monday.

Its offering is much higher than the yield paid on most savings accounts and competitive with a growing number of banks that are also offering high-yielding savings accounts requiring no minimums or a $1 balance. These include Citibank (2.36%), HSBC (2.30%), and First National Bank of Omaha, Marcus by Goldman and Synchrony — all three yielding 2.25%, according to Bankrate.com.

Personal Capital Cash also offers FDIC insurance coverage up to $1.25 million, which is five times the usual FDIC limit for each depositor at an individual bank, because the firm is partnering with five banks for these accounts, according to a spokesperson.

UMB Institutional Banking, however, is Personal Capital’s partner in the launch of Personal Capital Cash. Other banks were not identified in a statement from the company.

In addition to Personal Capital Cash, Personal Capital has also launched a new tool on its dashboard to help individuals boost their savings, called Savings Planner. The planner calculates, analyzes and tracks an individual’s annual savings goals for retirement and an emergency fund by taking into account everything from monthly expenses to taxable versus tax-deferred accounts.

“Too many financial companies are trying to tell Americans that saving is simple — that they can just make coffee at home instead of buying that latte,” said Personal Capital CEO Jay Shah. “But we know better … Personal Capital is creating complete, clear solutions to help people feel confident about their money decisions.”

Personal Capital manages $8.56 billion in over 52,300 discretionary accounts, according to its latest Form ADV filing with the Securities and Exchange Commission, dated April 9.

— Check out Many Investors Are Confused About Financial Advice: Personal Capital on ThinkAdvisor.

Crypto Exchanges Are Facing Biggest Regulatory Hurdle Yet

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Bitcoin and its fellow cryptocurrencies have surged in popularity partly because they’ve offered a way to skirt the government oversight exercised over traditional financial systems. Well, get ready to kiss much of that autonomy goodbye.

On June 21, the Financial Action Task Force — a multi-government effort that develops recommendations for combating money laundering and financing of terrorism that’s followed by about 200 countries including the U.S. — will publish a note to clarify how participating nations should oversee virtual assets, FATF spokeswoman Alexandra Wijmenga-Daniel said in an email. The new rules will apply to businesses working with tokens and cryptocurrencies, such as exchanges and custodians and crypto hedge funds.

Much depends on how the rules — long governing traditional bank wire transfers — will be interpreted and applied by country-specific regulators, but they are “one of the biggest threats to crypto today,” Eric Turner, director of research at crypto researcher Messari Inc., said in an email. “Their recommendation could have a much larger impact than the SEC or any other regulator has had to date.”

The guidelines will require companies ranging from exchanges Coinbase Inc. and Kraken to asset manager Fidelity Investments to collect information about customers initiating transactions of over $1,000 or 1,000 euros, as well as details about the recipients of the funds, and to send that data to the recipient’s service provider along with each transaction.

While that may sound simple, compliance will be costly and technically difficult, said John Roth, chief compliance and ethics officer at Seattle-based exchange Bittrex, which has about $58 million in daily-trading volume. After all, wallet addresses on digital ledgers supporting cryptocurrencies are largely anonymous, so an exchange currently has no way of knowing who the recipient of the funds is.

“It’s either going to require a complete and fundamental restructuring of blockchain technology, or it’s going to require a global parallel system to be sort of constructed among the 200 or so exchanges in the world,” Roth said. “You can imagine difficulties in trying to build something like that.”

A handful of U.S. exchanges are discussing how to set up such a system, said Mary Beth Buchanan, general counsel at San Francisco-based Kraken, which does about $195 million in daily volume.

“Without enhanced technology systems, this is a case of trying to apply 20th-century rules to 21st-century technology,” Buchanan said. “There’s not a technological solution that would allow us to fully comply. We are working with international exchanges to try to come up with a solution.”

The end result could be that many crypto businesses will face increased compliance costs, Buchanan said. Some non-compliant businesses could shut down, said Phil Liu, chief legal officer at Los Angeles-based hedge fund Arca.

“People in crypto like to make a big deal about giving personally identifiable information to the government, but I don’t see a whole lot of disruption for legitimate players if the proposal is enacted,” Liu said in an email.

U.S. exchanges may also lose customers, as instead of going through an exchange or another virtual-asset service provider (VASP), some may simply start trading with others directly, to safeguard their privacy.

“I get why the FATF wants to do this,” Jeff Horowitz, chief compliance officer at San Francisco-based Coinbase, the largest U.S. crypto exchange. “But applying bank regulations to this industry could drive more people to conduct person-to-person transactions, which would result in less transparency for law enforcement. The FATF really needs to consider the many unintended consequences of applying this specific rule to VASPs.”

Just how soon these consequences start to hit home will depend on the individual agencies. Groups like the Financial Industry Regulatory Authority (FINRA) are expected to start to vigorously enforce the rules. Financial Crimes Enforcement Network (FinCEN) recently issued interpretive guidance that looks similar to those being considered by FATF. Some state agencies could follow suit, raising the risk that non-compliant businesses will lose money-transmitter licenses.

If a country doesn’t comply with FATF rules and is placed on its blacklist, “it can essentially lose access to the global financial system,” said Jesse Spiro, head of policy at crypto investigative firm Chainalysis Inc.

The proposed regulations could also impact many of the more than 500 crypto funds that have popped up in the past few years, according to Josh Gnaizda, chief executive officer of CryptoFundResearch. “Trading delays or additional transactional costs as a result of compliance with FATF could significantly chip away at returns.”

After multiple meetings with the crypto industry, the regulators likely know compliance will take time, as the industry mulls new technologies and processes. Some participants are looking at the bright side, as greater oversight could lead to more institutional acceptance of crypto.

“Will it be a potential hardship? Certainly, at least initially,” Chainalysis’s Spiro said. “While it may be a hardship, it seems to be something that’s necessary. The road map at the end of the day after this is less arduous for this industry.”

Copyright 2019 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Top Performing Robo-Advisor Portfolios in 2019

Value portfolio: 1. Stash Investments’ Clean & Green | 2. M1 Finance’s Responsible Investing | 3. Stash Investments’ Blue Chips (Photo: Stash Investments website)

Growth portfolio: 1. M1 Finance’s Moderately Aggressive | 2. Fidelity’s Growth | 3. TIAA’s Moderately Aggressive (Photo: M1 Finance’s website)

Balanced portfolio: (1) Acorns’ Moderate | (2) Fidelity’s Growth with Income | (3) Sogo Marketriders’ Balanced Growth – Starter (Photo: Acorns website)

Income portfolio: 1. Sogo Marketriders’ Moderate Income — Starter | 2. Acorns’ Moderately Conservative | 3. Wealthfront’s Risk Score 2.0 (Photo: Sogo Marketriders’ website)

Conservative portfolio: 1. Sogo Marketriders’ Diversified Income — Starter | 2. Sogo Marketriders’ High Income — Starter | 3. TIAA’s Conservative (Photo: TIAA’s website)

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Nummo, a personal financial management platform, on Friday reported the best 2019 year-to-date performers among some 250 robo-advisor portfolios.

The report, which is an update of its 2018 annual survey, ranked the top three performers in five portfolio categories: conservative, income, balanced, growth and value.

Nummo reviewed 19 robo-advisors — those that it said were fully transparent in sharing all information — and some 250 portfolios.

In generating its rankings, Nummo looked only at performance. It did not consider cost or any qualitative factors as it does in its annual survey.

The report showed that only a few firms bettered the year-to-date performance of the S&P 500 Index, which was up 14.06% as of May 17.

The majority of robo-advisors in the review — including those from Charles Schwab, Betterment, SigFig, Morgan Stanley, AssetBuilder and SoFi Wealth — did not make the top three ranking in any portfolio category. In their stead, several new players elbowed their way to the top.

Roi Tavor, Nummo’s CEO and co-founder, said in a statement: “2019 has been such a remarkable story in terms of volatility that we wanted to see how robo-advisors had performed YTD. The results give us a very interesting picture and show how challenging such shifting market conditions can be.”

Tavor noted, however, that it was important to look beyond performance, particularly during a highly volatile period, to other factors that provide a more comprehensive perspective on robo-advisors — the impetus for Nummo’s annual study.

“In fact, we continue to view robos as the ideal investing option for anyone who is not served by the broader advisor industry,” he said.

Check out the gallery for the top three performers in the five portfolio categories, according to Nummo.

— Related on ThinkAdvisor:

The Trouble With Robos

Jen Butler of Corporate Insight.

Digital advice providers, or robo-advisors, have found great success as measured by the number of users and the assets they have attracted. But recent research by Corporate Insight suggests that even the largest standalone robos and those bolted onto existing financial services platforms are missing the boat in substantial ways when it comes to meeting the preferences of their targeted customers.

Jen Butler, senior analyst, explained that the “core of what we do” at Corporate Insight is to explore the digital user experience of, for example, banks and insurers. Those companies might hire Corporate Insight to assess their specific offerings using traditional market research. The company also follows an ‘audit’ process of all the offerings in a market vertical, surveying multiple companies and its customers and comparing each company’s strengths and weaknesses vis-a-vis their competitors with the insights of their customers, creating benchmarking analysis for its clients.

But Corporate Insight then unearths some of its most telling insights by opening “live funded accounts” at all those companies, Butler said. That, she says, allows the firm to directly “get the user experience,” which supplements its survey data.

In late April, Corporate Insight released its Digital Advice Audit service, which benchmarks a specific firm’s digital advice user experience. The service is partly built on the findings of a late 2018 survey of 1,100 digital advice customers and prospects that collected data on customers’ expectations, behaviors, preferences and satisfaction with their provider’s technology and overall service.

So what findings from the audits and the survey are of interest to advisors or broker-dealers who might want to partner with an “startup” robo-advisor that white-labels its offerings or use a broader platform service like Schwab’s Institutional Intelligent Portfolios?

First, making that robo partnership decision could be important for individual RIA firms and BDs, says Butler, since the industry is reaching a “level of parity” that makes it difficult for individual advisors to compete, unless “they want to compete on price, which is continually compressing.”

The benchmarking data suggests many robo websites fall short in meeting user expectations in areas like goal planning and education. There is a line firms have to “walk between finding ways to get people engaged in the advice process, but also disincentivize too much engagement” so users don’t pull out their assets willy-nilly at times of market volatility, she said. A “pure” robo (i.e., one without human advisors) like Wealthfront walks that line, Butler said, by focusing on its Path aggregation-based multi-goal planning tool that’s easy to use and allows users to mark progress toward multiple goals.

By contrast, ‘incumbent’ providers like Fidelity, Vanguard and Schwab started their downstream, digital advice offerings as a defensive measure to serve the mass affluent, Butler pointed out. So their user experience is more focused on efficiently creating inexpensive portfolios and features like automatic tax loss harvesting.

Here’s another trend. Startup robos are starting to offer “freemium” access, which includes, in Personal Capital’s case, a “robust” aggregation-based analysis tool that links to held-away assets to discover any issues — e.g., improper asset allocation or high fees — within a user’s overall portfolio. It then makes suggestions to move those assets to the user’s Personal Capital account to remedy the issue. While that could be a benefit to users, Butler points out that “it remains to be seen” whether the SEC would consider those suggestions “advice.”

Another shortcoming identified by Corporate Insight’s survey was mobile functionality. While robo customers tended to assign higher importance to their provider’s website, 73% of users surveyed said it was either “very important” or “extremely important” to provide a mobile app. There is opportunity to improve those apps, Butler said, especially because not many providers even offer mobile apps. Instead, the functionality is embedded into “what is essentially a mobile trading app,” she said.

The startup providers tend to offer the best standalone apps, Butler said, though Schwab’s Intelligent Portfolios’ app is “very intuitive and usable.”

Perhaps not surprisingly, Butler reported that the majority of the users surveyed who said a mobile app was highly important were millennials. But then again, the average age of the users surveyed was 42, and many fell into the demographic segment of HENRYs — High Earners Not Rich Yet.

One final finding might not provide much comfort to advisors who worry about robos taking away their livelihood. In its survey, Corporate Insight asked users of hybrid offerings — which combine robo-advice with access to human advisors — whether they had used human advisors before; 76% said they had. The survey then asked whether those robo-affiliated human advisors were better or worse than their previous advisors; 68% said their new advisors were better.

— Check out BofA Merrill Brings Advisors to Robo Program on ThinkAdvisor.

Fidelity to Launch a Planning-Centric Wealth Management Platform

(Photo: AP)

Fidelity Institutional plans to launch a comprehensive planning-centric wealth management platform next year to meet the growing demand for managed accounts and financial planning services among RIAs, broker-dealers and family offices.

The Fidelity Managed Account XChange, which the firm expects to begin to roll out in early to mid-2020, is designed to solve two growing trends: “a clear movement toward planning-oriented practices and the evolution into more fee-based and managed solutions,” says Gary Gallagher, head of Investment and Managed Solutions for Fidelity Institutional.

Fidelity notes that the market for managed accounts is projected to reach $8.1 trillion by 2020, up from $5.7 trillion in in the second quarter of 2017.

The Managed Account Xchange will function as a complementary overlay to Fidelity’s Wealthscape Integration Xchange, its open-architecture digital store, and eMoney Advisor, the financial planning software technology it acquired in early 2015. The Wealthscape and eMoney platforms will continue to exist as separate entities, but users of either will be able to easily access the new platform.

It will “offer distinct end-to-end advisory capabilities and develop deep integrations between Wealthscape, eMoney Advisor and Envestnet, enabling advisors to plan, propose, invest and report in one streamlined workflow,” according to a statement from Fidelity. Its curated menu of  managed accounts solutions will include both Fidelity funds and third-party asset management, said Gallagher.

Over time the platform is expected to support both planning-oriented and nonplanning-oriented managed account users with the digital services offered through the Fidelity Automated Management Platform, AMP, and its digital advice platform.

“In the era of fee compression, it will be the perfect platform to deliver more value to more clients,” Gallagher said.

Fidelity hasn’t yet set the costs or minimum required for the upcoming platform but is confident that it will be competitively priced, says Gallagher, noting that the firm is looking at a “simplified pricing framework” that can accommodate investment offerings from multiple asset providers.

Fidelity has filed a Form ADV application with the Securities and Exchange Commission for Fidelity Institutional Wealth Advisor, which will sponsor the platform.

— Related on ThinkAdvisor:

SEC Names CIA Veteran Zerrusen to Cybersecurity Post

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The Securities and Exchange Commission said Monday that CIA veteran Kevin Zerrusen has been named to serve as Chairman Jay Clayton’s senior advisor for cybersecurity policy.

Zerrusen — who currently serves as chair of the Intelligence National Security Alliance’s Cyber Council, a group chartered to promote effective public-private sector collaboration on cybersecurity issues — will coordinate efforts across the agency to address cybersecurity policy, engage with external stakeholders, and help enhance the SEC’s mechanisms for assessing cyber-related risks.

For the past five years, Zerrusen has served as managing director at Goldman Sachs, where he led initiatives to strengthen technology risk governance, incident management and insider threat programs.

“The Commission has the dual responsibility to promote efforts by market participants to address cyber risks and respond to cyber events as well as our own obligations to address cyber risks and prepare for cyber events affecting the agency itself,” said Clayton in a statement. “Kevin’s wide range of expertise regarding cybersecurity risk and financial markets, including 30 years in the intelligence community, will be invaluable to our continued pursuit of these important efforts.”

Zerrusen added in the statement that he looks forward to working Clayton, the SEC staff, and our fellow financial regulators “to continue to counter the cyber threat and increase the SEC’s security and resiliency posture.”

A 30-year veteran of the Central Intelligence Agency, Zerrusen’s responsibilities included running the agency’s cyber center, which was responsible for analyzing, evaluating and countering foreign cyber threats.

He earned his MBA from Syracuse University and his bachelor’s degree from the University of Dayton.

A Timeline of the Contentious Fiduciary Rules

Janet Levaux, MA/MBA, is Editor in Chief of Investment Advisor magazine; she has covered the financial markets since 1991 and advisors since 2005. After living in Latin America and Europe as part of her studies at Yale and Johns Hopkins SAIS, Janet worked in Japan and then California, where she earned a business degree, before returning to her hometown of San Antonio, Texas (which turned 300 in 2018).

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