Democrats Float Bill to Help Workers in Closed Pension Plans

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Sens. Rob Portman, R-Ohio and Ben Cardin, D-Md., members of the Senate Finance Committee, introduced legislation Thursday to protect workers in closed defined benefit plans from having their benefits frozen by Jan. 1, 2020.

Portman and Cardin said that The Retirement Security Preservation Act of 2019 (RSPA) — which is included in the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019, that’s tied up in the Senate — amends and modernizes the pension nondiscrimination rules that apply to these single-employer pension plans.

The most recent estimate from the American Benefits Council finds that at least 450,000 Americans are at risk of losing future pension benefits by Jan. 1, 2020, if a solution is not reached, the senators noted.

“Some plans have already been forced to freeze due to Washington’s inaction,” they said.

The senators “are pleased that the legislation is included in the Secure Act, but we are introducing it as a standalone bill as well to send a message about its urgency,” Portman said. “Older workers in these affected closed defined plans deserve relief before it’s too late.”

Added Cardin: “While I maintain my belief that the Senate should pass the Secure Act now, we have an obligation to act immediately to prevent a further loss of benefits for workers affected by this provision. Congress must act immediately to give workers, especially those closer to retirement, the certainty they need to make decisions and plan their lives — be it passing the Secure Act or passing this standalone bill.”

The senators explained that some companies that have moved from defined benefit plans to defined contribution plans have elected to grandfather existing employees by closing their traditional DB plans (also known as “soft freezing”); other companies have “hard frozen” their traditional DB plans but assisted existing employees in other ways, such as through enhanced DC plan contributions.

“When a plan closes, existing participants or a subset of participants continue to earn benefits under the traditional DB plan,” the senators said. “When a plan is ‘hard frozen,’ employees earn no new benefits under the plan.”

Lynn Dudley, senior vice president, global retirement and compensation policy at the American Benefits Council, applauded Portman and Cardin’s bill.

“For the better part of a decade, we have been urging lawmakers to address the quirk in the nondiscrimination rules that effectively compels pension plan sponsors to stop making contributions for older, long-service workers. Now, the stakes have never been higher,” Dudley said in a Thursday statement.

She went on to explain that when employer sponsors of traditional defined benefit pensions “soft freeze” their plans (close them to newly hired employees), they typically want to allow older, long-tenured employees to continue accruing greater pension benefits for the duration of their employment.

However, as these grandfathered participants in the pension plan age and advance in the company, the plan can inadvertently be subject to regulations prohibiting discrimination in favor of “highly compensated” employees, Dudley said.

“This glitch in the nondiscrimination rules effectively penalizes employers for trying to ‘do the right thing’ for their older workers,” she argued. “It is compelling some employers to ‘hard freeze’ their plans by ceasing accruals. This is something nobody wants to see happen,” Dudley said.

Dudley also said the RSPA bill improves on existing Treasury Department guidance by updating the testing rules while providing targeted relief to the many pension plans trapped by current law.

“The RSPA is bipartisan, inexpensive and incredibly urgent,” Dudley said. “We strongly encourage Congress to address this issue as soon as possible.”

Should Advisors Use Annuities for Their Clients?

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As advisor clients age and retire, the need for guaranteed income grows. Social Security can provide at most a few thousand dollars per retiree per month, but beyond that there are no guarantees. If an advisor perceives a gap between the income that a client needs in retirement and what that client will collect from Social Security and from savings, they might recommend an annuity to fill that gap.

“It all comes down to the client’s situation … to longevity risk and sequence of returns risk,” says Derek Tuz, partner at Aegis Financial Partners in Boulder, Colorado. “We have no idea when we’re going to die and what the market is going to do.”

Tuz is an advisor who uses annuities for certain clients to cover a portion of those clients’ income needs. Other advisors like Leon LaBrecque of Sequoia Financial avoid most annuities except single premium immediate annuities (SPIAs), which tend to be the simplest kind though not without complications or weaknesses.

SPIAs immediately annuitize and start making regular income payments for as along and account holder or beneficiary are living — and longevity annuities do the same but at a later date, often when the client is 80 or older. In exchange for those guarantees, however, the account holder no longer controls these assets; the insurance company does. When the annuity holder dies the contract dies with them unless the annuity holder had chosen an option that will allow the remaining assets to be paid to their beneficiaries or the annuity had a certain term of years which had not yet expired.

That’s not the case for variable or indexed annuities (also called equity index annuities and fixed indexed annuities) whose ownership rests with the investor until and unless the contract is annuitized.

Annuities are complicated. In addition to the different types of annuities, which include more complex variable and indexed annuities, there are multiple riders that can be purchased to meet the specific needs of clients, surrender charges, caps and floors on gains and losses (in the case of indexed annuities) and fees that are often not fully transparent.

Annuities are a proper tool when used correctly,” says Byrke Sestok, a certified financial planner at Rightirement Wealth Partners in Harrison, New York. “You have to know what you’re doing and you have to apply it to each client’s scenario.”

Advisors are divided about the use of annuities. Some don’t use them at all, and among those who do, there is a split often between advisors who tend to favor variable annuities and/or fixed indexed annuities and those who prefer immediate or longevity annuities.

They can’t sell them directly unless they have a state insurance license, and only variable annuities are considered securities, which require a Series 6 securities license to sell.

Also, fee-based advisors have little incentive to provide annuities, which reduce the assets under management on which their fees are based, unless they are fee-based annuities.

Given all these factors, ThinkAdvisor wanted to hear from advisors about their views of annuities and how and why they use them or avoid them, so check out Advisors’ Advice: Are Annuities Worth It?

— Related on ThinkAdvisor:

Ohio National Fighting to Avoid FINRA Arbitration

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Ohio National Life Insurance has suffered a series of legal setbacks as it fights lawsuits and arbitration demands in the wake of last year’s decision to stop paying certain commissions to thousands of financial professionals selling variable annuities.

A new lawsuit was filed against Ohio National in Texas last month by the parent company of broker-dealer Kestra Financial. The insurance company is resisting arbitration demands in Ohio, and its lawyers are asking a Massachusetts judge to reverse a ruling routing a case into the Financial Industry Regulatory Authority’s arbitration process.

In the company’s home state of Ohio, the insurer suffered a key setback after Magistrate Judge Stephanie Bowman issued a recommendation June 28 that found there was sufficient evidence to allow the claims for breach of contract and unjust enrichment to proceed. Ohio National unsuccessfully argued that the plaintiff — a representative for a broker-dealer marketing the annuities — lacked standing as a third party to the selling agreement.

“That was a very significant development that allows the case to move forward on behalf of the representatives selling the product,” said an attorney in that case, Dennis Concilla of Columbus, Ohio’s Carlile Patchen & Murphy. “Ohio National had asked the court to rule that they were not a party to the contract, and therefore had no right to sue.”

Ohio National is now arguing that if Bowman’s recommendation stands, it will “open the floodgates to litigation initiated by corporate employees/agents on all sorts of corporate contracts.”

Judge Susan Dlott, who is overseeing that case and two others consolidated before her, has not yet ruled on whether she’ll accept Bowman’s assessment.

Concilla’s complaint does not seek to have the dispute sent to a FINRA arbitration panel, which Ohio National has been fighting tooth and nail, but Concilla said he understands why the insurer and its co-defendant affiliates may want to stay in federal court.

“This is just speculation, but a FINRA arbitration is a court of equity, and I suspect they feel that they could lose in that kind of setting,” Concilla said. “A court responds to law and fact; an arbitration panel rarely rules on a motion to dismiss, for example.”

Ohio National’s lead counsel is Marion Little and Christopher Hogan of Columbus’ Zeiger, Tigges & Little. They did not respond to a request for comment, and an Ohio National spokeswoman said the company will not comment on the pending litigation.

The Legal Context

The litigation centers on Ohio National’s decision last year to get out of the annuities business altogether to focus on its life and disability insurance products. Among the annuities it discontinued were those with a provision called the Guaranteed Minimum Income Benefit Rider, which guaranteed a certain level of income to the purchaser regardless of underlying performance of the investments.

According to court filings, Ohio National and its subsidiaries sold more than $10 billion in variable annuities between 2012 and 2018, paying commissions to some 50,000 to 75,000 advisors affiliated with independent broker-dealers who opted to receive smaller up-front commissions in favor of larger trail commissions, or ongoing commissions paid for the products they sell.

The insurer sent termination letters to broker-dealers selling the GMIB annuities, saying in September that it was canceling their contracts and would no longer pay trail commissions.

Lawsuits accused Ohio National and its subsidiaries of breaching their selling agreements, which said the commissions would be paid until the annuities were surrendered or paid out.

The complaints said individual brokers and representatives stood to lose tens of thousands of dollars annually from the canceled commissions, and some named additional defendants including Ohio National Life Assurance Corp., Ohio National Equities Inc. and Ohio National Financial Services.

Ohio National’s responses all revolve around the argument that its contracts allowed termination with a 60 day prior notice, and that the commissions were only guaranteed to be paid while the contracts were valid.

The insurer is fighting to keep the disputes out of arbitration, arguing it is not a FINRA member and cannot be compelled to arbitrate without its consent.

Lawsuits Galore

Ohio National has sued several broker-dealers who are also seeking FINRA arbitration in Ohio.

And earlier this month, Kestra filed a new complaint — the second in that state — joining other federal litigation including actions pending in California, Illinois, Minnesota and Alabama.

In its own Ohio lawsuit against several broker-dealers in California, Florida and Delaware, Ohio National said it received complaints filed with “multiple state departments of insurance” by customers saying their GMIB annuities were being terminated, that the insurer had “fired” their advisors, that the advisors will no longer have access to the customers’ financial information, and will no longer provide “financial advisory services that the customer paid for and will continue to pay for” in annual fees.

Those assertions are false, the insurer said, and were part of a campaign “orchestrated” by the defendants or their agents and constituted a breach of their contracts.

In addition, it said some of the defendants filed at least two complaints seeking FINRA arbitration, even though their contracts contained no arbitration clause.

In Massachusetts, where U.S. District Judge Denise Casper of the District of Massachusetts granted the plaintiff’s request to force a dispute into FINRA arbitration, the insurer has sought to have the case reopened so the ruling can be submitted to an interlocutory appeal.

Ohio National used similar arguments before Casper, who granted the plaintiff’s request to force a dispute into FINRA arbitration in Massachusetts.

While FINRA rules do provide that arbitration cannot be compelled against a non-member, the selling agreement for the annuities contained a “valid, enforceable arbitration agreement between the parties, not just those entities already bound to FINRA arbitration” under those rules, Casper wrote. “While defendants assert the opposite, they cite no law or fact that would render the contracts invalid under traditional principles of law or equity.”

Ohio National wants the case to be reopened and certified for an appeal, arguing that case law addressing the issue of forcing a non-FINRA party into arbitration has not been “settled” as “neither the First Circuit nor the U.S. Supreme Court has ruled on this issue.”

Ohio National’s lawyers conceded in a July 17 brief that courts have routinely held that arbitration agreements encompass the “obligation to arbitrate disputes with the entity’s agents who are claimed to have personal liability.”

“But that is not this type of case,” it said. “Instead, this case involves an agent of a contracting party [Commonwealth Equity Services representative Margaret Benison] seeking to arbitrate against another party to the contract.”

“Benison cannot compel [Ohio National Life Insurance Company and Ohio National Life Assurance Company] to arbitrate because FINRA rules incorporated into the contract do not allow it,” the brief said, and “cannot use the contract to fabricate a right to arbitrate” that those rules prohibit.

Casper has not yet ruled on the motion.

FINRA-Related Fears

Ohio National is not the only entity leery of FINRA involvement.

When it discontinued the trail commissions, the insurer followed up by sending the broker-dealers whose contracts they were canceling new “servicing agreements” under which they would still be paid for servicing their clients’ non-GMIB annuities.

But the broker-dealers would not be paid for servicing the discontinued annuities, even though they “are expected to service the GMIB Annuities, and incur the obligations that come with same, without payment or receipt of any compensation,” according to the complaint in Commonwealth Equity.

That has some broker-dealers worried they may run afoul of FINRA rules.

“My big problem is that they’re saying they’ve terminated their selling agreements with all these firms, and most of the firms haven’t signed a new service agreement,” said a broker-dealer who asked not be identified because he is involved in the litigation.

“Ohio National is still acting as if there is an active agreement between them and the broker-dealers,” he said. “But if Ohio National’s position is that they’ve terminated their selling agreements but they’re still allowing the representatives to service the products, they’re sharing customer information with a disinterested party. That’s in violation of a number of FINRA rules.”

Ohio National’s move also created an impermissible conflict, he said, because representatives forced to work for free have no incentive to provide the service or advice their clients need to make decisions about complicated financial products like annuities, he said.

“Ohio National needs to take all of this on,” he said. “You can’t tell me I’m fired and you’re not going to pay me, but I still have to come to work. If we’re terminated you need to take over servicing these tens of thousands of contracts.”

A FINRA spokeswoman said that, as a policy, the agency does not comment on or confirm whether any enforcement actions have been initiated or whether arbitration complaints have been lodged.

LTCI Policyholders' Grip Is Loosening: Genworth

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Genworth Financial Inc. and other struggling, longtime issuers of underpriced long-term care insurance (LTCI) policies have complained for years about a serious problem: LTCI policyholders are thoughtful people who love their coverage.

In the past, LTCI issuers have reported that even mammoth LTCI premium increases have led to just modest “shock lapse” figures.

Genworth executives told securities analysts Wednesday, during a conference call they held to go over second-quarter earnings, that they’re seeing a little give in the policyholders’ iron grip on their LTCI policies.

Genworth has now received approvals for rate increases for $11.5 billion in LTCI premium rate increases.

(Related: Genworth Says It’s Seeking Buyers for Canadian Unit)

The company reported, in a conference call slidedeck, that the average approved increase fell to 37%, on $238 million in in-force premium revenue, in the second quarter, compared with an average of 58%, on $160 million in in-force premium revenue, in the year-earlier quarter.

But policyholders’ responses to LTCI rate increases helped reduce LTCI policy reserve needs by $118 million in the second quarter, up from $39 million in the second quarter of 2018.

The increases also led to $120 million in additional premium revenue, up from $102 million in the year-earlier quarter.

Kelly Groh, the company’s chief financial officer, said during the conference call that more of the LTCI policyholders affected by the increases are choosing to reduce their benefits and keep their premiums about the same, rather than keeping their benefits the same and paying the full, increased premium bills.

“We do expect the reduced-benefit trend to continue in the near-term, although with variability as we continue to implement the in-force rate actions achieved last year and in the first half of 2019,” Groh said.

Resources

A copy of Genworth’s earnings presentation slidedeck is available here.

— Read Genworth Filings Could Ease Sale of Genworth Canada, on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.

SEC Hits Commonwealth for Failure to Disclose Revenue Sharing Conflicts

SEC headquarters (Photo: AP)

Commonwealth Financial Network has become the latest advisory firm to come under the sword of the Securities and Exchange Commission over revenue sharing.

Late Thursday, the SEC charged Commonwealth with breaching its fiduciary duty by failing to disclose that it received over $100 million in a revenue sharing arrangement related to client investments in certain share classes of “no transaction fee” and “transaction fee” mutual funds.

The latest allegation comes about six months after the independent broker-dealer joined 78 other firms in paying a combined $125 million over 12(b)1 fees.

The SEC’s new complaint alleges that Commonwealth breached its fiduciary duty to its clients by failing to disclose the conflicts of interest created by its receipt of compensation through the revenue sharing agreement.

According to the complaint, from at least July 2014 through December 2018, Commonwealth was paid to select and manage investments for its clients, “but failed to tell its clients that some investment choices generated additional multi-million dollar while other similar investment choices would have generated much less, or no, additional revenue.”

Commonwealth, with approximately $85 billion in assets under management, offers its investment advisory services through 2,300 investment advisor representatives and through three Preferred Portfolio Services programs – PPS Custom, PPS Select and PPS Direct.

The complaint states that since at least 2007, Commonwealth has had a clearing relationship with National Financial Services, an affiliate of Fidelity Investments, as the clearing broker for PPS investment accounts, and that Commonwealth requires substantially all of its PPS advisory clients to select NFS.

While Commonwealth disclosed it would receive revenue sharing for investments in a “no transaction fee” program offered by its clearing firm, the complaint states that Commonwealth “did not disclose that this revenue sharing arrangement meant that Commonwealth had differing financial incentives depending on which products it selected for its customers.”

The complaint cites three examples:

• In some instances mutual fund shares offered through this program had at least one lower-cost share class that clients could invest in for which Commonwealth received less or no revenue sharing;
• Commonwealth also received revenue sharing on certain mutual fund investments for which the broker charged a transaction fee, and;
• There were certain mutual funds for which Commonwealth did not receive any revenue sharing and thus had an incentive not to select.

In a statement, the independent broker-dealer said that while the SEC’s enforcement action “is a pending legal matter, Commonwealth Financial Network vehemently denies the allegations and believes they are categorically without merit. We are confident we have operated both appropriately and justly and will vigorously defend our actions in this matter.”

The Share Class Disclosure Initiative was launched by the securities regulator’s enforcement division in February 2018 to identify and correct what the agency has seen as “ongoing harm in the sale of mutual fund shares by investment advisors.”

In December, the enforcement division began new investigations of advisory firms that did not self-report violations under the agency’s initiative — with a new focus on revenue sharing.

Tell Clients About Sequence of Returns Risk

(Chart: CUNA Mutual)

One defining characteristic of the current long bull run is historically low market volatility. From 1990 to 2011, the Standard & Poor’s 500 posted an average annual gain of 7.6%, while the average daily close of the VIX Volatility Index during the same period was 20.6%.

On the other hand, in the following seven years, from 2011 to 2018, the average annual gain for the S&P 500 was 10.9%, while the daily VIX average was just 15.2%. Investors could be forgiven for growing complacent.

(Related: Structured Annuities Soften Downturns)

However, recent gyrations — a credit market dislocation in late 2018 and big stock market swings in 2019, mostly related to trade disputes — suggest volatility may be making a comeback. Now is a great time to talk to clients about that.

Such a conversation is especially on point for savers approaching retirement. For years, advisors have coached investors to take a long view and invest a healthy portion of their nest eggs in equities. The fundamental wisdom of that advice is borne out by the S&P chart, which shows nearly every recent bear market being followed by a relatively more powerful rally.

An S&P chart, however, also illustrates the potential risk to individual savers whose retirement windows fall at a discrete and totally random period on the timeline — sometimes when the market is marching higher — and sometimes when it is falling.

While the impact of the sequence of annual returns on an investment makes no difference over time if the assets are not touched, it can have a big effect if the investor is taking distributions along the way.

Our “Unhappy Returns” table starkly illustrates this sequence of returns risk — the risk that the market is on a downswing when an investor transitions from wealth accumulation to wealth distribution — and how it can impact outcomes. It shows the beginning and ending balance for two hypothetical retirees, Trish and Roberto.

Both Trish and Roberto start out with $100,000 in their nest eggs allocated to stocks and bonds. Both make annual withdrawals of $5,000. Trish, however, begins making withdrawals while the market is rising. Despite a bear market after Year 10, she has nearly $84,000 left in her account after 15 years.

Roberto’s 15 years of returns are exactly the same as Trish’s, and if neither of them were drawing money out of their savings, their ending balances would be identical. But they are making withdrawals, and Roberto’s annual returns occur in the opposite order of Trish’s. That means he encounters the same downturn that Trish experienced in Year 11 just three years into his retirement window. As a result, the impact of his annual withdrawals on the size of his principal in the early years is relatively more severe, and despite the subsequent bull market, Roberto’s portfolio never fully recovers.

After 15 years, he has $46,000 left in his account, a little more than half of what Trish has.

For poor Roberto, perhaps the only thing worse than beginning to tap his retirement account just when the market was about to take a leg down would have been to panic after it did so.

Suppose that after Year 4, the first year of double-digit losses, Roberto had cried uncle and rotated into cash investments yielding 2%. By doing so, he would have dodged the second year of steep losses, but he also would have missed out on the subsequent bull market. His balance after 15 years? A scant $34,000, versus $46,000 if he had ridden out the bear market and stayed invested.

It happens all the time. Well-advised investors with well-constructed, long-term financial plans get cold feet when markets drop and sell at precisely the worst time. That’s why now is the time to have a heart-to-heart with clients about volatility, it’s potential impact on their plans and the proactive steps they can take — whether it’s adopting a more conservative allocation over time or looking at registered index-linked annuities that control risk — to get ready for it.

— Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.

Elle Switzer is director-annuity product management at CUNA Mutual Group, a mutual insurance holding company that issues annuities through CMFG Life Insurance Company and MEMBERS Life Insurance Company.

Advisors' Advice: Are Annuities Worth It?

1. Chris Chen, CFP, Insight Financial Strategists

“No one knows the cost of an annuity, it’s well under cover and not revealed and almost always involves a commission and names can be misleading. Fixed indexed annuities, for example, are not invested in stocks but in derivations based on [a] stock index, which can be more risky than stocks.
“If you have a fixed immediate or deferred annuity and you die next year, the principal you funded the annuity with dies with you unless you got some fancy rider with distribution options.” And that comes with its own costs. Chen prefers bond ladders which he says can be structured with about $100,000.”

Ex-Advisor Dawn Bennett Sentenced to 20 Years in Prison

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Dawn Bennett, the former advisor who owned a luxury sportswear company and hosted the radio show “Financial Myth Busting,” was sentenced to 20 years in prison Wednesday for defrauding retirees out of $20 million.

“Dawn Bennett knowingly defrauded retirees of their life’s savings — most of which she used for her own personal benefit,” said U.S. Attorney Robert K. Hur. “She’s been held accountable for her lies and theft and will now spend years in federal prison.”

Bennett, 56, of Chevy Chase, Maryland, faced 17 federal charges including conspiracy, securities fraud, wire fraud, bank fraud and making false statements on a loan application.

U.S. District Judge Paula Xinis ordered Bennett to pay restitution of $14.5 million and forfeiture of $14.3 million.

According to the ruling, between December 2014 and April 2017, Bennett solicited individuals to invest money in her internet clothing business, offering an annual interest rate of 15% via convertible or promissory notes.

The $20 million she secured from 46 investors, mainly retirees, was used to fund such things as a luxury suite at a football stadium; to pay a website operator to arrange for priests in India to perform religious ceremonies to ward off federal investigators; to purchase astrological gems; and for cosmetic medical procedures.

“In order to entice individuals to invest, Bennett made false and misleading statements, including: the risks of investing in DJB Holdings; how investors’ funds would be used; and that the loans were liquid and guaranteed by DJB Holdings’ inventory and assets, and by Bennett herself,” the ruling states.

Witnesses testified that Bennett concealed the true financial condition of her companies from investors.

Bennett was convicted in a federal court in Maryland last October of charges she defrauded investors out of millions of dollars.

A Financial Industry Regulatory Authority panel decided in March 2017 that Bennett must pay a client over $1 million in compensation and fees for investments in SPDR Gold ETFs.

The Miami-based FINRA panel ruled then that Bennett, Western International Securities and Bennett Group Financial Services were required to give Steven Santagati, a dating counselor, about $764,000 in compensation and nearly $280,000 to cover legal and related fees.

Bennett, now barred from the industry, racked up an extensive regulatory record over her 28-year career with five firms, according to FINRA’s BrokerCheck.

The Securities and Exchange Commission announced fraud charges against Bennett and her financial services firm in September 2015  for “grossly inflating” its assets under management on a radio talk show and on Facebook.

— Related on ThinkAdvisor:

Northern Trust Acquiring Digital Investment Platform for Advisors

(Photo: Shutterstock)

Northern Trust Asset Management is joining the growing list of asset managers that offer a digital advice platform.

The global investment manager with more than $900 billion in assets under management announced Tuesday that it has entered into an agreement to acquire Belvedere Advisors, the owner of Emotomy, an open-architecture, comprehensive, custom-branded digital investment advice platform that helps financial advisors build, manage and market their own investment strategies.

“This strategic acquisition reaffirms our commitment to partnering with the financial advisor community to deeply understand their needs and provide best-in-class investment solutions and technology to help them serve their clients more efficiently and effectively,” Northern Trust Asset Management President Shundrawn Thomas said in a statement. Terms of the deal were not disclosed.

The acquisition is expected to close before year-end, after which Emotomy will operate as an independent wholly owned subsidiary of Northern Trust.

According to a Northern Trust spokesman, once the deal is completed, advisors using Emotomy will be able to:

• Offer clients custom-branded, personalized investment advice, communication and reporting
• Offer a range of investment options and custodial services, including pre-constructed models and models built by the advisors themselves, plus a broad selection of asset servicers including custodians
• Provide advisors and clients a 360-degree view of portfolios based on real-time data, market insights and detailed investment portfolio reports

“This thoughtfully designed solution offers the flexibility they [advisors] require to suit their clients’ needs,” according to the Northern Trust statement.

After the Belvedere Advisors acquisition is completed, Northern Trust will remain “fully committed to supporting, expanding and investing in the Emotomy platform so users will continue to benefit from its state-of-the-art functionality and user-friendly experience,” said Sabrina Bailey, head of digital investment advice at Northern Trust Asset Management.

Tipster’s Email Led to Arrest in Massive Capital One Breach

 

Capital One Financial Corp. set up an email address for tipsters — including “white hat” hackers —to alert the company to potential vulnerabilities in its computer systems. On July 17, the company got a hit.

“Hello there,” the email said, according to federal prosecutors. “There appears to be some leaked s3 data of yours in someone’s github/gist.” A link was provided to an account at GitHub, a company that allows users to manage and store project revisions, mostly related to software development.

It didn’t take Capital One long to figure out who had accessed its files. The GitHub address included a name, Paige Thompson, a former Amazon.com Inc. employee who used the online nickname “erratic” and discussed her exploits with others, according to federal prosecutors.

“I’ve basically strapped myself with a bomb vest, (expletive) dropping capitol ones dox and admitting it,” Thompson allegedly wrote, under the “erratic“ alias, in a June 18 Twitter message. “There ssns…with full name and dob” — an apparent reference to Social Security numbers.

Damage Assessment

It also didn’t take Capital One much time to assess the damage. On Monday, it announced that about 100 million people in the U.S. had been impacted by the breach, and another 6 million in Canada. The illegally accessed data, which was stored on servers rented from Amazon Web Services, was primarily related to credit card applications and included personal information, like names, addresses and dates of birth, and some financial information, including self-reported income and credit scores.

Most Social Security numbers were protected, but about 140,000 were compromised, the bank said. Capital One said it was “unlikely that the information was used for fraud or disseminated by this individual.”

The company described the tipster to the hack as an “external security researcher.”

Thompson, 33, was charged with computer fraud and abuse. In a court hearing Monday, she broke down and laid her head on the defense table. On Tuesday, New York Attorney General Letitia James announced that her office is opening an investigation into the Capital One breach.

The scale of the breach ranks it as possibly one of the largest-ever impacting a U.S. bank, although the consequences may be limited if the data wasn’t distributed to others or used for fraud.

Capital One shares fell as much as 6.5% Tuesday morning, their biggest decline in six months.

Security Lapses

The breach shows how hackers can steal vast troves of consumer data as the result of lapses made by the companies that collect it. In 2017, Equifax Inc. failed to patch a known flaw in its servers, resulting in the theft of 145 million Social Security numbers, along with the names and dates of birth of possibly a third of the U.S. population.

In the Capital One case, Thompson was allegedly able to steal vast buckets of personal data because of an improperly configured firewall — among the most basic digital security tools. The bank said it immediately fixed the problem once it was discovered.

In a complaint filed Monday in Seattle, prosecutors said that Thompson accessed the data at various times between March 12 and July 17. A file on her GitHub account, timestamped April 21, contained a list of more than 700 folders and buckets of data, according to prosecutors.

The Capital One data had been stored on servers it contracted from a cloud computing company that isn’t identified, though the charges against Thompson refer to information stored on S3, a reference to Amazon Web Services’ popular data storage software.

An AWS spokesman confirmed that the company’s cloud had stored the Capital One data that was allegedly stolen, and said it wasn’t accessed through a breach or vulnerability in its systems.

Cloud Advocate

Capital One has been one of the most vocal advocates for using cloud services among banks. The lender has said it is migrating an increasing percentage of its applications and data to the cloud and plans to completely exit its data centers by the end of 2020. The move will help lower costs, the company has said.

The lender has been the subject of several case studies published by Amazon Web Services that noted the cloud services provider has helped the company develop new technologies faster and improve certain services including its call center.

“We have embraced the public cloud and are well on our way to migrating our applications and data to the cloud,” Chief Executive Officer Richard Fairbank told analysts on a conference call in April. “We are now considered one of the most cloud forward companies in the world.”

Thompson, previously an Amazon Web Services employee, last worked at Amazon in 2016, a spokesman said. The breach described by Capital One didn’t require insider knowledge, he said.

‘Wa Wa Wa’

Much of what could be learned about her Monday was information she had posted online. On her GitHub Account, she was writing code dealing with The Onion Router, or Tor, an anonymity tool that allows users to conceal their identities. Capital One investigators determined that Thompson used it in her hack of the bank, according to federal prosecutors.

In online interactions, Thompson suggested she was careful to hide her digital tracks with various security tools, including Tor. But the federal complaint against her outlines relatively simple ways Capital One and the FBI were able to establish her identity, including the name on her GitHub Page.

Thompson was active in the hacking community on Twitter, and she wrote recently about struggling emotionally, and about euthanizing her beloved cat.

On June 27, “erratic” posted about several companies, including Capital One, in an online group, according to court records.

“don’t go to jail plz,” another user wrote.

“Wa wa wa wa, wa wa wa wa wa wa wawaaaaaaaaaaaa,” Thompson responded, and later added, “I just don’t want it around though. I gotta find somewhere to store it.”

On July 29, Federal Bureau of Investigation agents executed a warrant to search Thompson’s residence. In one bedroom, they found digital devices with files that referenced Capital One and its cloud computing company. The devices also included the alias “erratic.”

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Many Self-Employed Americans Aren’t Saving Enough for Retirement: Transamerica

(Photo: Shutterstock)

Many freelancers and other self-employed Americans plan to continue working even after they retire — and many of them will have to because they’re not saving nearly enough to live on while retired, according to the findings of a new study recently released by the nonprofit Transamerica Center for Retirement Studies (TCRS).

“The whole idea of retirement seems to be a lot less relevant” to self-employed workers, who like the flexibility self-employment offers and being their own boss, Catherine Collinson, its CEO and president, told ThinkAdvisor on Monday.

Sixty-two percent of self-employed Americans plan to continue working while they’re retired and only 26% of the self-employed are “very much” looking forward to retirement, the study “Self-Employed: Defying and Redefining Retirement” showed.

Sixty-eight percent of the self-employed intend to work beyond age 65, including 40% who expect to retire after age 65 and 28% who don’t plan to ever retire, TCRS said.

Among the self-employed who plan to retire after age 65 and/or continue working in retirement, their reasons for doing so are more often healthy-aging related (83%) than financial (73%). The most-cited reasons were to be active (59%), keep their brain alert (56%), enjoy what they do (54%) and want the income (54%).

The number of self-employed people who plan to continue working in their retirement years was surprising, Collinson said. But she told ThinkAdvisor: “If anything, the self-employed may have a false sense of security. Given that they’re self-employed and they’re successful in what they do, they may be overly optimistic about how long they will be able to continue working or that their business will be viable, and retirement could very well come sooner than planned or expected.”

Many of them are failing to make the necessary preparations for their retirements, she noted. Although most of the self-employed are saving for retirement to some degree, all too many of them are either not saving enough or not saving at all. While 55% of them are consistently saving for retirement, 30% are only saving from time to time and a “concerning” 15% say they never save for retirement, the firm said in an announcement about the study.

Of the self-employed, 16% indicated they had either taken a loan or early withdrawal from a retirement account, Collinson also told us. Of those who said they weren’t saving for retirement, 20% indicated they had done that, she said.

Total household retirement savings among the self-employed is $71,000 (estimated median), TCRS said. But relatively few are saving in tax-advantaged retirement accounts, suggesting they may be missing out on an opportunity, it noted, adding only 31% are saving in a traditional or Roth IRA. The self-employed, meanwhile, expect diverse sources of income when they retire. Seventy percent expect income from Social Security and 54% from other savings and investments. But only 40% expect retirement income from typical retirement accounts including 401(k)s, 403(b)s or IRAs.

The analysis contained in the study on the self-employed was broken out from the company’s 19th Annual Transamerica Retirement Study, which was prepared internally by the research team at Transamerica and based on a 25-minute, online survey conducted between Oct. 26 and Dec. 11, 2018, among a nationally representative sample of 5,923 adult workers by The Harris Poll on behalf of TCRS. Of those workers, 755 people who identified themselves as self-employed were broken out for the separate study, TCRS said.

It was the first time that TCRS did a separate study on the self-employed, Collinson told ThinkAdvisor, noting her company was responding to the surging number of Americans who have become self-employed.

— Related on ThinkAdvisor:

Now Is the Time to Do a 'Back-to-School' Tech Check

We are all familiar with the “back to school” time of year. Summer is ending and it is time to focus on another “school” year. Of course, the ultimate goal is to do enough preparation work so that you can start the new year in the best position possible. With this in mind, let’s discuss some “back to school” items for your technology.

Always important is making sure you have all the necessary materials and tools — especially updated technology.

Maybe it’s time to upgrade your computer, tablet, smartphone, etc., to help better achieve your technology goals for the rest of the year. Or perhaps the Internet connection for your office and home, which is clearly a critical a component of your technology infrastructure given your day-to-day business needs, might also be in need of an upgrade to the bandwidth (speed) of the connection.

Also, make sure you’re up-to-date with the latest features and tools of the systems used by your firm.

A new feature or update have been introduced while you were on vacation, so take a moment and review the recent announcements/messages from your core technology partners. Maybe you need to watch a webinar again that highlights the new features for one of the systems. You definitely don’t want to miss out on any efficiency opportunities simply because you were on vacation.

A new school year typically means new clothes and haircuts. Do the same with your technology.  Uninstall and delete programs that you no longer use on various types of hardware (computer, tablet, smartphone).

Do the same clean-up effort with any cloud-based applications. For example, do you still have an active account with a cloud-based provider that you never use?  Sometimes we cancel services, but still have an active account with credit card details and other information previously collected.

Another important area is to make sure all of your programs are up to date with the latest version, which often entails bug fixes and security updates.

No doubt, there’s always excitement about going back to school, especially if you enjoy learning and getting exposure to new ideas. Think about technology and your firm’s operations with the same mindset.

Opportunities abound throughout our profession — from conferences and workshops to webinars and case studies. Just like starting new classes at the beginning of the school year, think about selecting one or two areas where you can to expand your technology knowledge.

Parents’ Health Care Spending Can Be a Risk to Clients' Retirement

 

With the number of Americans age 85 and older projected to more than double by 2040 — 14.6 million from 6.4 million in 2016 — it comes as no surprise to financial advisors that more of their clients in retirement or nearing retirement are involved in caring for aging parents.

Perhaps not surprising either is that the number of those employed as aides to help the growing population of octogenarians and nonagenarians is growing. Recent projections by the U.S. Bureau of Labor reveal that the nation’s fastest-growing job category is “personal-care aide,” which will have about 750,000 more openings by 2026. Fourth on the fastest-growing list is “home health aide,” accounting for another 450,000 jobs.

For advisors’ clients, there are costs and risks connected with this growth. If they have the means, the elderly paying for personal care will pick up the tab themselves. Otherwise, their families are likely to pay all or part of the bill. These rising costs, of course, should now be reflected in comprehensive financial and investment plans.

But what about the risks? One that especially could affect the financial well-being of clients and their families — and a risk that more and more advisory clients will face — is the liability that comes with employing an aide.

Consider the case of 85-year-old Stella Wagner, who lives in her home in Fairfield, Connecticut., which is worth $2 million and constitutes the bulk of her non-financial assets. She also has an investment portfolio of $3 million.

For reasons including estate planning, Stella transferred the ownership of her home to a limited liability company, Riverbend LLC, which maintains the property and pays expenses connected with Stella’s care. With Stella needing some help in the activities of daily living, Riverbend hired a live-out home health aide. Stella took part in the interviews to help find the right candidate, but the company, headed by her adult son, selected the aide.

After six months, Stella and her son decided that the home health aide should be discharged because they had reason to believe that she had taken several household items that were missing. The aide then filed a wrongful termination lawsuit against Riverbend and Stella personally, claiming she had been employed in a hostile work environment, and asked for compensation from Riverbend and Stella for pain and suffering.

Stella and her son thought the insurance they updated when Riverbend took ownership of her home would provide adequate protection, but it didn’t.

Due to a gap in those policies’ coverage, neither Riverbend nor Stella had protection for the aide’s wrongful termination lawsuit because employment practices liability (EPL) coverage wasn’t included in the excess liability policy that protected Stella and Riverbend. Because both had been involved in the hiring process — even though Riverbend was paying the aide — both were liable but should have been covered by EPL insurance.

Also missing was worker’s compensation coverage, which Riverbend as the employer should have been paying. Fortunately, the aide employed by Riverbend was not injured on the job. But had she been, the cost of her injury and compensation for her loss of future earnings would have been borne by Riverbend and Stella, which might have meant selling Stella’s long-time home or depleting her investment account.

Clearly, these are complex issues. For that reason, advisors should schedule a coverage review with an insurance specialist familiar with employment liability once an advisor learns that a client has hired, or is considering hiring, a home health aide for themselves or a relative. Your attentiveness will be much appreciated and may save considerable anguish and expense.

If you have any questions about this topic, please email me at AskFran@Chubb.com.

Fran O’Brien is Division President, North America Personal Risk Services, Chubb.

 

 

Does Your Advisory Firm Need a Makeover?

In my experience, some firm owners “build” their businesses similar to the way many people furnish a new house. That is, by purely random selection.

“Oh, that’s a nice couch, let’s buy it.” “And I like that dining room set, it reminds me of my mother’s.” “And look at that rug, it’s it beautiful!” “What about those paintings; I’m sure could find places for them.”

We’re talking about no plan, no strategy, no overall design, no thought for how the new furniture will fit or work together. But after some time and the newness feeling fades, you realize you have a collection of “stuff” that doesn’t necessarily fit together.

That’s how some advisory firms are started, too: With a focus on meeting immediate needs, based on preconceptions, and a bit of advice from friends and other advisors.

While some of that “advice” can be helpful, its major flaw is that it’s based on someone else’s vision of the business they want — not on your vision for the business you want. At some point, firm owners come to this realization and turn to a business consultant to sort it out.

But we don’t have the luxury of telling our clients to scrap their existing business and start over. Instead, starting with what they have now, we help firm owners create a plan for the lives they want today and in the future, based on a vision of where they want their businesses to go and a plan for how to get there. It’s similar to why investors hire financial advisors.

Design Plan

It’s true that some advisory firm owners don’t think strategically about their businesses and instead take more of a one-day/week/month-at-a-time approach.

The first step toward a business strategy is creating a design. How is the firm structured? What services does it offer, to whom and by whom? What does the process for delivering those services look like?

We do get push back over “wasting time” going over how an advisory firm does what it’s supposed to do. The problem is fully understanding and appreciating the benefits of a well-designed business.

While more free time and less stress are among the results of this approach, some firm owners are surprised to find that their re-designed businesses are significantly more profitable, too — without an increase in revenues or AUM. In other words, we take your stuff and make it valuable.

Higher revenue doesn’t necessarily equal more profit, and quite often will result in a decrease in profitability. This is because some firms are too complex in their operations, too cluttered with tasks that don’t relate to client services, and they require too much management. All this increases costs, while taking up time and resources.

Simply put, in business, design is margin. I work with some firms with $5 million in annual revenues that generate more profits than some $15 million revenue firms, mainly because these “bigger” firms are focused more on revenues rather than on design.

That’s not to say you can’t have both high revenue and high profitability; a well-designed firm should have both rising revenues and profits. That’s the goal.

To do that, though, you have to properly allocate your human capital. Here are two ways to make that happen:

As the owner, save yourself some time. Surround yourself with experts who provide an outsider’s objective perspective — a lawyer, an accountant, and an independent business consultant.

Nobody is good at everything. Demonstrating that you understand that about yourself will not only make your life easier, it also will set the right example for your employees.

Start leading your people. When employees don’t understand what they are supposed to be doing, they end up doing whatever they want to do, and this requires a lot of management to get them back on track and to keep them there.

It’s better to be a leader than a manager; leaders make sure their people know what they are supposed to do, and not do. And a well-designed business will show them what they are supposed to do.

There are different approaches to take in order to accomplish this. Smaller firms tend focus on their “client experience” and hire the right people to deliver it. Larger firms use organizational design to formalize the flow of work within a business, so everybody knows what they are supposed to do when.

Be Focused

No matter the size of your business, it’s important that your people have specific jobs. Firm owners tend to hire people with multiple skills. That’s because it’s the kind of people they tend to be. And it’s a valuable trait when initially launching a business.

But as a business grows, these “jacks of all trades” become less useful and more of problem. For one thing, they usually are not experts at anything, which makes it hard to find the right job for them. And because they usually wear too many hats, it’s usually not clear to them or anyone else, what they are supposed to be doing at any given time.

This means these people require a lot of management, taking up the owner’s time, causing her/him to tend to not want to hire more people — even when their business really needs them.

The solution is to focus on hiring more experienced people, with narrower expertise as you grow. In firms with limited resources, this often means replacing some of their current people with new people.

Because this is a hard decision for most owners, I often suggest they first try moving people into new, more defined jobs that still fit their skill sets, and provide additional training if necessary.

Not infrequently, advisory firms find it hard to get some people to move as they feel threatened by the change. A discussion about the need to specialize in a growing business is all it takes.

Point out that the change is not a reflection on their performance. Instead, it will enable them to make an even bigger contribution to the business’ success if they work with you toward a more focused role.

To help smooth these business transitions, the owner should lead by example; show them what you want to do, specialize yourself, get yourself more help, and let go of your other hats. Don’t focus on replacing you, just focus on what you do well. And the silver lining is that if more owners focused on themselves, their businesses would be a lot better off — and easier to lead.

The best advisory firms based on profit, efficiency, and growth are led by the best leaders — and the best leaders ask for help.

Angie Herbers is managing director and senior consultant at Herbers & Company, an independent growth consultancy for financial advisory firms. She can be reached at angie@angieherbers.com.

What Will Become of Us?

Mark Tibergien

“The desire to maintain the status quo is more powerful than the momentum to change it.”  That bit of wisdom came from Simon Sinek, who I had the opportunity to interview at BNY Mellon Pershing’s 2019 INSITE conference.

Sinek challenged the 2,000 attendees to throw away many of the commonly-accepted (yet outdated) management philosophies made popular in the 1980s in favor of a new goal — to build more compelling businesses. People should be excited to get to work, in a place where they feel safe and fulfilled by what they do.

What not to do? Force rankings of employees based on the goal of mustering out the weakest links; measure against key performance indicators that focus on performance vs. competitors instead of measuring our own momentum; driving strategies designed to beat the competition instead of plans to satisfy the customer.

Drawing from his new book The Infinite Game — scheduled to be released Oct. 15, 2019 — Sinek noted that leaders with a “finite” mindset tend to think in terms of fixed rules, agreed upon objectives, and known players (think baseball, hockey or soccer). Leaders with an “infinite” mindset realize there are both known and unknown players and that the goal is not to beat your opponent, but to stay in the game as long as possible. That mindset should exist among all business leaders because it allows us to learn, to be resilient and to anticipate change.

“For finite thinkers, a competitor is somebody you want to beat,” he said.  “For infinite thinkers, a worthy rival is another player in the game whose very existence reveals your weaknesses.”  When you understand the difference, he added, you will also appreciate what steps you must take to create a business to last.

As an example, he cited how Microsoft was obsessed with beating Apple. Meanwhile, Apple was driven by the desire to help teachers teach and students learn. Consequently, Microsoft did not compete well in areas like MP3 players, mobile phones and tablets, while Apple as a mission-driven business became more enduring and more relevant to the education and retail market. Ironically, their focus was not on becoming larger than others, but as a result, they have become one of the world’s most valuable businesses.

Using other metaphors about how we make decisions, Sinek reminded us of the Vietnam War which, for those of us who were around at the time, recall how it appeared to be an endless struggle that created great stress at home as dissenters outnumbered supporters.

Amazingly, the United States lost 58,000 troops in the war while North Vietnam lost more than three million people.  Yet Vietnam prevailed and the United States gave up its effort to stop the Communist dominos from falling in Southeast Asia.  Sinek observed that the Viet Cong would have fought to the last man because they were fighting for their independence, while the United States lost its will to win because its mission had become unclear and support at home had waned.

Financial services has become equally obsessed with domination, said Sinek — pay the most to  the highest performers, and show the greatest growth, regardless of the culture being fostered. That juxtaposition of key drivers in businesses led by finite and infinite thinkers is stark, yet likely familiar to many advisors who consider how they can influence the lives of their clients, rather than how they can grow assets or beat the competition.

Sinek also observed how disruptors have changed so many traditional businesses who appeared blind-sided by the competition. He asked: “Why did a computer company invent iTunes and not a company in the music industry? Why did Amazon build the e-Reader (Kindle) and not a company in the publishing industry? How come Netflix wasn’t built by the movie industry but by a professional marketer and mail order executive?”

He related that the CEO of Blockbuster, the largest retail video distribution company at the time, noted what Netflix was doing to access the movie-loving public with a subscription model, but his board did not support the shift to subscriptions that he proposed. Why? Because his board felt it would disrupt a key revenue source — 12% of Blockbuster’s revenues came from late fees.

What Does This Mean?

All of these examples can’t help but make you think: What will become of our business?

Are you resilient and open to change or will you preserve the status quo because that is all you know?  Perhaps you can wait it out until you retire from the business and leave the problem to someone else.  But, think about it:

• What If Amazon chose to enter the financial advice business?
• What if your custodian decides to go direct to the consumer and bypass the independent advisor?
• What if another firm introduces subscription pricing where asset-based fees have long been the standard?
• What if FINRA and the SEC managed to harmonize the business models from a regulatory standpoint thereby forcing both broker-dealers and RIAs to adapt to a new world order?

None of these is a far-fetched concept. In fact, we can see some of this movement already.  Unfortunately, most firm leaders are waiting for someone else to show the way forward instead of innovating or adapting on their own.

With each passing day, the need for change becomes more urgent. Baby boomers have substantially moved into de-acumulation, though there are still some stragglers.  Gen X and Gen Y are emerging as the new wealth builders. Right behind them are the digital natives of Gen Z, who are now entering the workforce.

Their frame of reference is so much different from the client base for which the current advice model has been constructed. Those who started investing over the past 10 years have never experienced a down market. Folks of a certain age conduct much of their business on a mobile device. Many are struggling with issues like liability management and are deferring key decisions such as buying a home or starting a family by an average of eight years longer than their parent’s generation.

Most cannot relate to the Vietnam War when the draft was still in force. However, they can relate to changes in Social Security that might affect their retirement date and payments in their old age. They can see the changes in their world that has been wrought by climate change likely caused by previous generations. They can observe their parents who may not be able to afford their retirement and who are becoming dependent on them.

In the not too distant future, we will be a majority minority country, which means different cultures, different perspectives and different attitudes will influence how companies chose to do business.  How will this affect the people you hire, the clients you serve, the awareness you must glean and the acceptance of alternative ideas that you will hear?

What Will Become of Our Business?

• As clients will want to pay for value delivered in different stages of their lives, it is conceivable we will see a legitimate alternative approach to asset-based pricing.
• As asset managers find their margins, and in some cases their relevance, increasingly under pressure, many investment choices may simply disappear; and it is possible the passive instruments will not have an active market to prop up their performance.
• As custodians and broker-dealers experience lower income for trading and asset values, and as reimbursements from fund companies shrink or disappear, the way in which advisors pay for platform access may also change.
• As new clients begin to realize that the value of an advisor is to help them navigate financial decisions from financing and refinancing, to managing risk, to planning for retirement and for philanthropy, they will begin to recognize that how they are paying may not be aligned with the value they are receiving. In turn, advisors will begin to realize how they are demonstrating their value, what they are reporting on and how they are communicating will also need to change.

Indeed, what will become of our business? Leaders of the future will need an infinite mindset to think these challenges through.

Supersize a Roth 401(k) With Backdoor Contributions

Almost every advisor and serious retirement saver out there understands the basic limits that apply to pre-tax contributions to a 401(k) account, whether a Roth or a traditional account.

These clients are likely also well versed in the traditional backdoor Roth IRA, which allows clients to convert IRA funds to a Roth IRA. What many clients fail to grasp, however, is the fact that some clients with high saving potential may be able to stretch the limits of the added value of a Roth’s tax-free withdrawals by contributing to a backdoor Roth 401(k) by using special contribution rules to access the “backdoor” to the Roth 401(k). By paying close attention to both the IRS rules and the plan-specific rules that may apply, the client may be able to nearly triple the level of funds that are funneled into their overall 401(k) strategy while significantly increasing the level of funds that are available to grow and be withdrawn tax-free in the process.

Benefits of the Mega-Backdoor Roth 401(k)

The basic IRS 401(k) contribution rules allow a client under age 50 to contribute up to $19,000 in pre-tax funds to his or her 401(k) in 2019 ($25,000 for clients who have reached age 50).  However, the overall contribution limit that applies to employer, employee pre-tax and employee after-tax contributions combined is $56,000 (or $62,000 for clients 50 and over).

Because of this, some clients may be able to significantly increase the level of after-tax contributions added into the 401(k).  However, if those after-tax contributions are left in the traditional 401(k), the earnings on those contributions will eventually be subject to tax at the client’s ordinary income tax rate—even though the after-tax contribution itself could be withdrawn tax-free.

Roth 401(k)s are subject to the same contribution limits as traditional 401(k)s, but are treated differently from a tax perspective.  The second that the after-tax contribution is funneled into the Roth portion of the 401(k) (or into a Roth IRA), those same earnings begin to grow on a tax-free basis—meaning that those earnings are not subject to tax as they accrue within the Roth and they are not subject to tax when withdrawn, so long as the applicable withdrawal rules are followed.

Using this backdoor strategy, the client is essentially able to “supersize” the value of the after-tax contributions by generating tax-free growth on even the earnings portion of those larger contribution amounts (note that direct Roth IRA contributions are currently limited to only $6,000 in 2019)—especially if the client plans to leave the funds invested in the Roth for a significant period of time.

What to Watch for

In order for the advantageous backdoor Roth 401(k) strategy to work, however, the terms of the specific plan must be closely examined to determine whether the plan allows for either in-service withdrawals (importantly, in-service withdrawals are different from hardship distributions and plan loans) or in-plan conversions.

An in-service withdrawal would allow the client to withdraw the funds from the 401(k) immediately and transfer those funds in a tax-free rollover into a Roth IRA.  An in-plan conversion, on the other hand, would allow the client to immediately transfer the funds into a segregated Roth 401(k) that is offered in conjunction with the traditional 401(k).  Under either strategy, the transferred funds would begin to grow tax-free as soon as they hit the Roth account.

If the plan doesn’t offer in-service withdrawals or in-plan conversions, the value of the earnings on the original 401(k) contributions will also be subject to tax when the client retires or is otherwise permissibly able to withdraw the 401(k) funds without penalty.

Further, clients should be advised that supersizing the Roth portion of their 401(k) with after-tax contributions is generally only advisable after the client has contributed the maximum possible in pre-tax contributions to accounts such as traditional 401(k)s, IRAs and health savings accounts (HSAs) because those funds both reduce the client’s current overall tax liability and grow on a tax-deferred basis.

Clients should also consider whether they will need access to the after-tax funds prior to retirement (in which case, a traditional taxable investment account may be a better option) and the actual features of the account to which they plan to contribute.  Higher fees and poor investment options within the Roth 401(k) might mean losing out on investment gains that could be possible outside of the retirement savings vehicle, and should always be considered in relation to the tax benefits of the Roth.

Conclusion

For clients with significant savings potential who are already maximizing contributions to their retirement accounts, accessing the backdoor Roth 401(k) through the use of after-tax contributions can provide an attractive solution for both maximizing their overall retirement savings and the tax benefits that those savings can generate.  While the backdoor strategy was indirectly blessed in connection with the 2017 tax reform, it remains important, however, to analyze the client’s entire financial picture and goals to ensure the strategy is right for them.

Treasury's Crime Unit Updates Email Fraud Guidance

(Photo: Shutterstock)

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has updated its email fraud guidance to alert financial institutions to trends in reported business email compromise (BEC) fraud.

The guidance to “Advisory to Financial Institutions on E-mail Compromise Fraud Schemes” issued by FinCEN on Sept. 6, 2016, provides updated operational definitions for email compromise fraud; information on the targeting of non-business entities and data by BEC schemes; highlights general trends in BEC schemes targeting sectors and jurisdictions; and alerts financial institutions to risks associated with the targeting of vulnerable business processes by BEC criminals.

BEC fraud targets accounts of financial institutions or customers of financial institutions.

“While the U.S. government and industry are heavily engaged in efforts to prevent email compromise fraud, reported incidents and aggregate attempted fraudulent wire amounts continue to rise,” the report states.

FinCEN’s updated report notes that the FBI reported over $12 billion in potential losses domestically and internationally from October 2013 to May 2018 from email compromise fraud.

Since FinCEN’s 2016 BEC Advisory, FinCEN has received over 32,000 reports involving almost $9 billion in attempted theft from BEC fraud schemes affecting U.S. financial institutions and their customers.

“This represents a significant economic impact on the businesses, individuals, and even governments that are targeted by these schemes,” the report states.

Financial institutions can continue to play an important role in identifying, preventing and reporting fraud schemes. FinCEN notes the importance of communication and collaboration among internal anti-money laundering and countering financing of terrorism (AML/CFT), compliance, business, fraud prevention, legal and cybersecurity departments within financial institutions as well as with other financial institutions across the sector.

The new report updates the original definitions of email compromise fraud, BEC and email account compromise. FinCEN broadens its definitions of email compromise fraud activities to clarify that such fraud targets a variety of types of entities and may be used to misdirect any kind of payment or transmittal of other things of value.

For example, while many email compromise fraud scheme payments are carried out via wire transfers, FinCEN has observed BEC schemes fraudulently inducing funds or value transfers through other methods of payment, to include convertible virtual currency payments, automated clearing house transfers, and purchases of gift cards.

— Check out FBI Sees Big Rise in Internet Crime Complaints, Losses on ThinkAdvisor.

Merrill Launches Content Sharing Platform

Merrill Lynch office. (Photo: AP)

Merrill Lynch Wealth Management further expanded its growing number of digital platforms with Socialize, a new “intelligent content sharing platform” that it launched in early July for iPhones and iPads, as well as desktop computers, according to Kabir Sethi, managing director of the company’s Global Wealth & Investment Management division and head of Digital Wealth Management.

About 150 Merrill Lynch advisors are using Socialize now, “but we’re going to ramp up the number quickly,” he told ThinkAdvisor on Friday. Like any digital platform the company launches, it’s starting with just a small group of its advisors initially before rolling it out more widely.

The company has also expanded it to Android devices, he said. “In the next few months, this will get to everyone,” he said, referring to the firm’s 15,000 or so advisors.

Socialize addresses the need of advisors to share content across multiple devices, he said, explaining advisors can select what topics of interest they have and what kind of content they want to see — such as machine learning, retirement or tax reform — and “then you get served up articles” that fit those areas of interest. Advisors can then press a button to share the content with other LinkedIn users, he said. Advisors can also schedule posts to be sent at specific times, he said.

Using a form of artificial intelligence, the platform then, “over time … gives you analytics around clicks and views for each article and, based on how people are viewing articles and which ones are more popular, the system automatically adjusts your topics of interest” to figure out what content to serve the user, he explained.

Another “intelligent platform,” Advisor Insights, was launched by the company for desktop computers in November 2018, it said. The company is using that platform to provide Merrill Lynch advisors with a wide range of insights into their clients that will enable advisors to better serve those clients, Sethi explained, noting the company will probably expand it to Android and iOS mobile devices next year, Sethi told us. Advisor Insights is also using a form of AI to provide those insights and then expand upon those insights over time, while figuring out what kinds of advice to stop providing in the future due to lack of interest, he said, adding it’s currently sharing about 1,100-1,200 individual insights a day to all its advisors.

The company’s clients, meanwhile, are increasingly adopting the company’s Merrill Lynch mobile trading and investing app and online digital platforms across all age groups. Among its advisors’ clients 70 and older, use of digital platforms is up 38% year-over-year, Sethi said, adding digital platform usage is up 49% among those under 40, 28% for those 40 to 49, 25% for those 50 to 59 and 25% for those 60 to 69.

Since the June launch of Merrill Guided Investing with an advisor, a new offering in which advice and guidance is delivered to clients through a Merrill Financial Solutions Advisor (FSA) and an enhanced digital platform, there’s been a 45% increase in weekly new advised relationships, according to the company.

What’s likely helped accomplish that is the company has attempted to make its digital platforms as simple and intuitive as possible for people to use and also that it’s making sure to communicate aggressively, it said.

There is a cost component to the digital initiatives because technology can reduce costs, but it’s also seeing much higher engagement as a result of clients going digital, the company said. Digital clients tend to have stronger engagement and relationships with the company’s advisors, it said.

The digital investments being made by Merrill Lynch Wealth Management are part of the $3 billion that parent company Bank of America said it’s spending this year on new technology overall.

Betterment Moves Into Banking

(Image: Thinkstock)

Betterment, the largest independent digital advisor, is launching an FDIC-insured savings and checking account platform that pays a higher interest rate on savings than almost every other digital and brick-and-mortar bank in the country, provided depositors also sign up for the checking account waitlist.

Those customers will earn a 2.69% APY on their Betterment Everyday Savings account for the duration of this year, which is higher than Wealthfront’s 2.57%. Depositors who don’t sign up for the checking account waitlist will earn 2.43%. Both rates are variable and “may change at any time,” according to the Betterment press release.

Any consumer can sign up for Betterment Everyday Savings and join the waitlist for Betterment Everyday Checking, starting Tuesday. The savings acçount is operational as of Tuesday and the checking account, which will be linked to a Visa debit card and reimburse account holders for ATM fees worldwide, will begin to roll out in September.

The savings account replaces the firm’s lower yielding Smart Saver low-risk bond portfolio, which had a 2% APY and was not FDIC-insured. Betterment Everyday Savings requires a minimum $10 deposit but no minimum balance.

“It was pretty clear that the thing to do next was a high-yield cash product,” Betterment Chief Technology Officer Mike Reust tells ThinkAdvisor, noting that the new higher rate savings account is a response to customers’ “needs and desires to offer all the financial products one can ever want.”

The new banking services, in turn, will help broaden Betterment’s customer base. “A larger number of younger customers are getting into banking before they get into investing,” says  Reust.

He explained that Betterment is able to offer such a high interest rate on its savings account because the account uses a network of banks, rather than a single institution. The partners at launch are Barclays, Citibank, Georgia Banking Co., Seaside National Bank & Trust and Valley National Bank.

David Goldstone, research analyst at Backend Benchmarking, which publishes The Robo Report, says Betterment’s new Everyday account is a smart strategic and competitive move. 

“They’re becoming more involved with people’s day-to-day cash flows, which is a great place to position themselves to help people move from day-to-day spending to long-term investment goals. They can introduce features to help split up that cash flow and address the full cycle of money.”

Betterment’s savings and checking platform also helps the firm stand out among robo-advisors. 

Personal Capital and Wealthsimple, like Wealthfront, offer savings accounts but no checking account, and their APYs are substantially lower than Betterment’s — 2.3% and 2%, respectively.

Acorns and Stash offer checking accounts and financial reward programs for purchases with linked debit cards, but they don’t pay interest on balances. Acorns debit card purchases are rounded up to the nearest dollar and the excess money being invested in six different exchange-traded funds. Purchases with the Stash debit card can earn 0.125% in fractional stock rewards of individual shares or ETFs.

Only SoFi Money comes close to the Betterment offering, combining savings and checking through an interest-paying checking account, but its APY is just 2.25%.

“Keep an eye on Betterment,” said Goldstone. 

According to its latest Form ADV filed May 23, Betterment has $16.4 billion in assets under management spread across just over 542,000 accounts

— Related on ThinkAdvisor:

Envestnet MoneyGuide Expands MyBlocks Tool for Advisors

Tony Leal, Envestnet MoneyGuide president.

Envestnet MoneyGuide expanded and enhanced its MyBlocks financial wellness ecosystem that the company said enables advisors to engage clients and prospects of all ages and financial backgrounds.

Twenty-one “blocks” of information are available now via the digital client engagement tool and more are being developed each month, the company said in a July 23 announcement. New enhancements include a self-registration feature that gives advisors a custom link to reach prospects more efficiently through their digital marketing efforts, it said. That link serves as a prospect engagement and lead generation tool for advisors to use on their websites, in email campaigns and on social media channels, according to the company.

“By the end of this year, I should have at least 35” blocks available, including new ones targeted at young people planning to get married (called Financial Bliss) and even high school-age children of advisors (called Kickoff), Tony Leal, Envestnet MoneyGuide president, told ThinkAdvisor.

“So many couples … get divorced because of money matters,” he noted, adding: “How great would it be for the couple to go through” an interactive questionnaire before marriage to learn where each one stands on important financial issues? A similar Retirement Bliss block is already offered by the company for older couples, he pointed out.

A recent survey by Northwestern Mutual and wedding planning and registration site The Knot found that although financial issues often create problems within a marriage, most engaged couples and newlyweds aren’t talking about money on a regular basis.

Future MyBlocks enhancements will include the addition of artificial intelligence, Leal said. Envestnet, which bought MoneyGuide parent PIEtech early this year for about $500 million, has an enterprise data management solution called Vision that “takes in a tremendous amount of data and then can do all sorts of business intelligence from it,” he noted, adding: “We are going to create a project with Vision” that will bring the same kind of AI to MyBlocks. But “I don’t have a timeline yet” for that, he said.

Each block of MyBlocks is grouped by topic, including: Protect Your Family (including life insurance and long-term care), Explore Retirement Topics (social security, health care and longevity), Have Some Fun (retirement compatibility game and inflation quiz) and FastPath to Freedom (credit card debt, college loan debt, retirement savings, building an emergency fund and saving for an experience or financial goal).

Blocks dealing with long-term care analysis, income protection and financial goals and concerns are “scheduled to be released later this quarter,” the company said.

MyBlocks is a separate, $125 a month product offering outside of the firm’s MoneyGuide financial planning software suite that includes MoneyGuideOne ($50 a month), MoneyGuidePro ($125 a month) and MoneyGuideElite ($175 a month). MyBlocks integrates with all current configurations of MoneyGuide, the company said. But advisors can opt to subscribe to MyBlocks alone, Leal noted.

As part of a special limited-time deal, MyBlocks users can also have integrated data aggregation with Envestnet Yodlee, including a suite of Yodlee FinApps that enables analyzing expenses, budgeting, linking accounts, reviewing transactions and viewing a summary of accounts, he said. For advisors with MoneyGuide, the data will import into a full financial plan, doing away with the need to request paper statements, the company said. More blocks and integrations will roll out through 2019 and into 2020, it said.

The company is targeting a wide range of advisors with MyBlocks, including RIAs, mid- and small-size banks and midsize and large broker-dealers, Leal said. It was “designed to feel like a consumer technology interface,” he said in the company’s announcement.

MyBlocks can be used on any device with a browser, including computers, mobile devices and smart TVs, Leal told ThinkAdvisor.

14 New Weaknesses Discovered in IRS' Security Control Systems: GAO

(Photo: Allison Bell/ALM)

Just as the IRS is implementing a six-year roadmap to modernize its systems, the Government Accountability Office has detected 14 new information security snafus in the agency’s computer systems.

The GAO states in a new report that during its fiscal year 2018 audit of the IRS, it found new information system security control deficiencies including weaknesses in access controls and in procedures to help ensure information systems are operating securely. “Weaknesses like these place IRS’ systems and data at risk,” GAO said. “IRS must keep its computer systems secure to protect sensitive financial and taxpayer information.”

GAO said the 14 new infractions, “while not collectively considered a material weakness, were important enough to merit attention by those charged with governance of IRS and therefore represented a significant deficiency in IRS’s internal control over its financial reporting systems.”

GAO assessed whether the IRS had effective controls in place to safeguard this information in the past and again during fiscal year 2018.

As of Sept. 30, 2018, GAO said that the IRS had completed corrective actions to address deficiencies associated with 46 of the 154 recommendations from its prior financial audits that we reported as open as of last July.

“One deficiency and its associated recommendation are no longer relevant because of changes in the agency’s operating environment,” GAO said. As a result, the IRS has a total of 127 open recommendations related to the information system security control deficiencies identified during GAO audits.

IRS Commissioner Charles Rettig told senators in mid-April that the agency has crafted a six-year roadmap for modernizing its systems and taxpayer services, including revamping an outdated information technology infrastructure.

The IRS’ Integrated Modernization Business Plan is expected to cost $2.3 billion to $2.7 billion over six years — including $290 million requested in President Donald Trump’s fiscal 2020 budget — to implement, Rettig told the Senate Finance Committee.

The investment, Rettig said, “will position the IRS to greatly improve and expand the services we provide to taxpayers — with new technologies such as customer callback and online notifications — while strengthening our enforcement capabilities.”

President Donald Trump signed into law on July 1 the Taxpayer First Act of 2019, legislation to redesign the IRS.

How to Prepare Your Business For the Future - Growth, Succession, and Acquisition Solutions

Overview

Date: Thursday, August 29, 2019

Time: 2:00 p.m. ET |11 a.m. PT

Cost: Complimentary

Sponsored by:

 

 

As a financial professional, you help your clients plan for their future – but are you thinking about your own? It’s important to identify areas for further growth within your business and prepare for the future through growth, succession or acquisition.

Join this complimentary webcast to determine if you have the proper plans in place to support your business and learn how to best develop a strategy for future success. You will discover how to:

• Create a long-term or succession plan for your business

• Grow your business through a merger or acquisition

• Structure a buyout with an existing partner using lending solutions

REGISTER NOW! (Not able to attend? STILL REGISTER you will receive an email with how to access the recording of the event)

Speakers:

Jeff Vivacqua | EVP and CMO | Cambridge

With over 20 years of experience in the financial services industry, Jeff Vivacqua serves as a member of Cambridge’s Board of Directors and Executive Council. Vivacqua has an active role in managing strategic issues for Cambridge that affect independent financial advisors including marketing, sales, and business education and development, while enhancing and expanding the digital strategies and solutions advisors need on a client-facing basis.

Vivacqua earned a Bachelor of Science degree in finance from Southern Illinois University and has certificates in Personal Financial Planning and Facilitative Leadership Training programs. He holds the FINRA Series 4, 7, 24, 63, and 66 licenses.

Advisor Group Launches Cybersecurity Program

Cybersecurity has been cited as advisors’ largest concern in many industry surveys, and answering that call with beefed-up security is Advisor Group, which announced a new effort to thwart bad actors from causing havoc to advisor data and systems.

The CyberGuard Program is a toolkit of services and platforms that offers a flexible structure of advisor solutions. Program features include:

• Comprehensive cybersecurity insurance, including privacy/data breach insurance protection and coverage for breach response costs, regulatory liability and business disruption;

• Discounted access to a cloud-based data backup solutions that gives advisors encrypted access to files from laptops, smartphones and other devices;

• Access to a security auditing and monitoring platform that continually monitors advisors’ systems to identify potential security gaps;

• Enhanced email and file storage capabilities with strong authentication and security monitoring features.

This program will continually evolve, Advisor Group says, noting that the company will be adding a feature shortly that scours the dark web for stolen advisor login credentials, protection against email phishing and assessing third-party providers’ potential cyber risk.

The new program also provides a group of dedicated cybersecurity experts to help advisors utilize the program offerings and troubleshoot any problems.

Jason Lish, who just joined the Advisor Group as chief security, privacy and data officer for advisor solutions, noted in a release that “With the CyberGuard Program, we are freeing our affiliated advisors from the need to source and build comprehensive cybersecurity systems on their own from scratch. This stronger level of protection in turn empowers them to run their businesses without fear of ever-escalating threats from cyber criminals across the financial advice space, while staying compliant with data protection regulations.”

Advisor Group is a network of independent financial advisors that serves more than 7,000 advisors and oversees $268 billion is client assets.

— Related on ThinkAdvisor:

Orion’s Purchase of Advizr Made Sense, but Challenges Remain: Wealth Tech Experts

(Image: Shutterstock)

The recent decision by Orion Advisor Services to buy New York City financial planning software startup Advizr made a ton of sense because it’s helping Orion expand into new markets and be more competitive with rivals including Envestnet, according to wealth tech experts.

However, Orion still faces major challenges and has a lot of work to do as new rivals look to enter the market.

Advizr “has a premier position among planning software in the employee benefits marketplace [and] 401(k)s, making it a very attractive acquisition for Orion to expand into new markets,” Timothy Welsh, president of consulting firm Nexus Strategy and a former Schwab executive, told ThinkAdvisor on Monday.

Orion’s decision to expand into financial planning with the Advizr acquisition, announced July 10, wasn’t surprising, blogger and advisor Michael Kitces tweeted after the announcement. After all, Orion was “rumored to be an active bidder” for MoneyGuidePro before Envestnet ended up buying those financial planning tools for $500 million, he noted.

“Strategically,” the software acquisition enables Orion to “continue to shift towards a more holistic ‘platform,’ from being ‘just’ portfolio performance reporting software” — just as adding Eclipse moved Orion into trading, he said.

“The ability to more deeply integrate their ‘own’ financial planning software also positions [Orion] better against Fidelity’s expanding portfolio-plus-planning WealthScape platform and Envestnet’s own Tamarac offerings,” he said.

Orion, however, is “still in a different position than the others” because it “doesn’t run a TRUE platform model (making money by participating in transactions on their platform),” he argued, noting that, “ultimately, it’s still in the software sales business.”

Orion was “still not well positioned to compete against” the kind of threat posed by Envestnet in particular, he said, adding Orion’s “whole category faces pricing pressure soon as advisor business models shift [and] merely throwing in financial planning software won’t necessarily validate the challenge.”

Meanwhile, Advizr has “struggled” with advisor market adoption and carries a much lower user rating than peers, he pointed out. That means Orion “still has some real work to do to bring Advizr up to snuff with the high-end RIA users running Orion,” he said.

It was also unclear if Orion’s purchase of Advizr represented a good deal for either of the two companies because the purchase price wasn’t disclosed, he noted. He also pointed to the lack of clarity around whether Orion users will have to pay extra to use Advizr.

Orion paid about $50 million for Advizr, RIABiz reported, citing an unnamed source. Orion on Tuesday declined to confirm or deny if that was accurate as it continued to be mum on terms of the deal.

But Orion Chief Marketing Officer Kelly Waltrich told ThinkAdvisor on Tuesday that “there will be no extra cost for use of the tool.” She added, however, that “if folks want to add aggregation there will be a small per-household fee for that.”

Kitces rated the Orion purchase of Advizr a “B- or so,” explaining that the startup and its client experience technology platform “helps expand Orion’s offering, but not to compete hard right away, as Advizr’s user ratings from RIAs suggests there’s still a lot of work to be done on its FP core even as new entrants loom.”

However, “on the plus side,” he said: “Yet another financial planning software acquisition should support ongoing interest from [fintech] investors who see both market opportunity and a long list of strategic acquirers to exit to.” He predicted it will be an “exciting few years for advisor FP software.”

Welsh of Nexus Strategy said he pretty much agreed with Kitces’ tweets on the acquisition — “except the grade of B- [because] Advizr has a robust cash flow engine, a very intuitive user interface and advanced functionality to open accounts right from the planning analyses.”

Giving the deal a grade of “A+,” he called it a “very significant acquisition for the industry as it once again fires up the debate for owning all of the components of the tech stack (Envestnet, Orion, Fidelity) vs. best-in-breed integrations (Black Diamond, TD Ameritrade).”

— Check out Orion Buys Planning Software Startup Advizr on ThinkAdvisor.

Skience Launches New Version of Its Wealth Management Platform: Portfolio Products

(Image: Shutterstock)

The Skience wealth management digital platform has been “re-architected” to enable advanced efficiency, scalability and configuration, according to the Herndon, Virginia-based company.

The firm, formerly known as The Athene Group, offers wealth management consulting services within Salesforce’s cloud-based customer relationship management (CRM) platform.

Skience 11.0 allows administrators to easily configure the user experience including application behavior, integrations and data layouts via Skience’s data cloud, “eliminating costly and frustrating delays caused by custom development work,” the company said in its announcement. 

Administrators can also add and rearrange elements from data transmissions that are visible in the CRM, giving wealth managers “pinpoint control over information needed to create a comprehensive view of their clients’ wealth,” the company said. The platform can accommodate new business lines as advisors expand their service offerings to support new custodians and product manufacturers and supports future upgrades “seamlessly and inexpensively.”

Skience 11.0 also marks a “significant advancement for our company, as it opens up the possibility for us to extend our business capabilities into new markets,” according to its CEO, Sanjeev Kumar.

VanEck Changes Name of Alternative Energy-Focused ETF

New York City investment firm VanEck changed the name and ticker symbol of the VanEck Vectors Global Alternative Energy ETF, effective July 9.

The new name is VanEck Vectors Low Carbon Energy ETF and the new ticker is SMOG (changed from GEX) and better reflects its energy ETF’s low carbon approach, according to the firm’s news release.

“As climate change and its potential solutions have become more present in our global discourse, the language used by those within the energy sector, as well as those investing in it, has changed and evolved,” according to Ed Lopez, head of ETF Product at VanEck. “What used to be referred to as ‘alternative energy’ is now more commonly referred to as ‘green,’ ‘clean’ or ‘renewable,’ and numerous large public companies in the energy space have acquiesced to investor demands to set more stringent, low carbon, emission standards,” he said in a statement.

The fund has an expense ratio of 0.63% and invests “at least 80% of its total assets in stocks of low-carbon energy companies,” added Lopez. It holds about 30 stocks and tracks the Ardour Global Index Extra Liquid, which focuses on companies involved in the production, transportation and storage of power via environmentally friendly, nontraditional sources such as wind, solar, hydro, geothermal and biofuels.

Hartford Funds Introduces AARP Balanced Retirement Fund

The AARP Balanced Retirement Fund expands Hartford Funds’ lineup of multi-strategy mutual funds with an investment strategy that the Wayne, Pennsylvania-based asset manager said was designed to “generate real total return” on a long-term basis while also decreasing downside risk and any impact from inflation on retirement accumulations.

The fund is a reconstructed version of the former Hartford Multi-Asset Income Fund, with a changed objective, principal investment strategy, portfolio manager and benchmark. It will invest in a variety of equity and equity-related securities, debt securities, structured products, derivatives, money market instruments and other investments, including other mutual funds and ETFs, according to Hartford Funds’ announcement. 

The target market is investors in or near retirement, who have less tolerance for major declines in the market, but still need to generate real returns to meet spending needs, it said. Wellington Management Company is the fund’s subadvisor.

Diamond Hill Launches International Strategy

Diamond Hill Capital Management launched the Diamond Hill International Fund, an international equity strategy that seeks long-term capital appreciation. 

The new fund invests mainly in foreign equity securities that portfolio managers Grady Burkett and Krishna Mohanraj see as undervalued, Diamond Hill said in a news release. 

They plan to diversify investments across multiple countries and regions, including up to 30% exposure to emerging markets, while maintaining 35-55 holdings in the strategy, the company said. The International strategy is available as a mutual fund or institutional separate account. The fund is available in multiple shares: A shares (DHIAX), I (DHIX) and Y (DHIYX), each with a different expense ratio: 1.16%, 0.87% and 0.75%, respectively.

Model FA Introduces Community Resource for Financial Advisors

The Model FA online community built by advisors, for advisors, launched a resource library and podcast. The Model FA community is looking to bring subject matter experts and advisors together to share best practices for branding, prospecting, selling, marketing and practice management, it said in a news release.

The Model FA community was inspired by the need for expert-provided, field-tested, up-to-the-moment practice management advice at a time when the role of financial advisors and client expectations placed upon them continue are changing rapidly.

“When we launched our RIA in 2016, we made a commitment to continually experiment, evolve, and adopt best practices in marketing, selling, and practice management,” Patrick Brewer, CFA, CPA, founder of SurePath Wealth and host of the Model FA podcast, said in a statement. But tested advice proved to be “surprisingly hard to find,” said Brewer, adding that Model FA is “a resource …  that our profession desperately needs.”

Advisors in the Model FA community have access to resources including the podcast; a blog offering advice on launching, marketing, scaling and transforming a financial service firm; and a resource library with templates that it said will enable advisors to “stop re-creating the wheel, get inspired, and build the firm of their dreams.”

— Check out last week’s portfolio product roundup here: MassMutual, CommonBond Offer Student Loan ReFi Plan: Portfolio Products