Wealth Management
According to Richard Best, Head of the Division of Exams at the Securities and Exchange Commission, Regulation Best Interest and the Advisers Act fiduciary duty remains a top priority for 2023 exams. While speaking at the SEC’s National Compliance Seminar, Best said that standards of conduct such as Reg BI and the fiduciary duty “remain top of mind for us.” Best told compliance officers that the Division of Exams is “focused on how broker-dealers and advisors satisfy their obligations under Reg BI and the Advisers Act fiduciary standard to act in the best interest of retail investors and not to place their own interests ahead of retail investors interest.” The exam division publishes an annual priorities letter each year, with the 2023 priorities expected to be issued early next year. The three areas of focus will be ESG-focused investing, private funds, and standards of conduct. For ESG, the SEC will look into whether advisors are accurately disclosing their ESG investing approaches and have implemented policies to prevent violations of federal securities laws.
Finsum:With exam priorities expected to be issued early next year, the SEC has made Regulation Best Interest and the Advisers Act fiduciary duty a top priority for 2023 exams.
Fintech firm WBI and ETF provider Pacer recently announced a strategic partnership to transform how financial advisors interact with clients to personalize and implement model portfolios. WBI offers investment technology that optimizes multi-manager portfolios that target loss or return. The platform’s interactive toolkit takes inputs from the client and assistance from an advisor and establishes client benchmarks for loss and return. The imbedded invest-tech then optimizes a portfolio to meet the client’s targets. Advisors can instantly customize the portfolio to position the client for success. Pacer is a well-known ETF firm that focuses on strategy-driven, rules-based ETFs. The two firms will work together to promote the targeted loss portfolios of WBI’s technology platform. WBI and Pacer will also look for other opportunities to partner on model construction. Matt Schreiber, Co-CEO at WBI had this to say about the partnership, "WBI is excited to work with Pacer. Their rules-based ETF offerings seek to produce strong risk-adjusted returns which are favored by the platform’s optimization engine. This partnership allows both parties to build on the momentum around our innovative products and shared mission to help improve investor outcomes."
Finsum:Fintech firm WBI and ETF provider Pacer are joining forces to promote WBI’s targeted loss portfolios that advisers can construct for clients.
Some of the biggest names in finance are benefitting from a lack of reliable ESG data in emerging markets. Federated Hermes is one firm that has spent considerable time over the past year building its ESG exposure to emerging markets. The company says “artificially low” environmental, social and governance ratings have created opportunities for investors. Martin Todd, a portfolio manager at Federated Hermes told Bloomberg that “the mainstream ESG ratings firms often give emerging-market stocks a lower ranking because of fewer disclosures relative to companies listed in the developed markets. That’s created some really interesting valuation opportunities.” In emerging markets, ESG regulations are less advanced than in developed markets and ratings aren’t as established. In fact, ESG ratings for emerging market companies are artificially low due to a lack of disclosure, not because of any particular concern. While that creates an extra layer of risk for some investors, for firms with deep pockets, it provides an opportunity to beat the market.
Finsum:Fund managers are generating alpha in emerging market ESG stocks due to a lack of disclosure and artificially low ratings.
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As the demand for standardized and transparent ESG disclosure rules continues to grow, a group of alternative asset managers launched a template for ESG disclosure. The ESG Integrated Disclosure Project template was created by the Alternative Credit Council, the private credit affiliate of the Alternative Investment Management Association, the Loan Syndications and Trading Association (LSTA), and the United Nations-supported Principles for Responsible Investment. The Alternative Credit Council includes 250 asset management firms that manage over $600 billion of private credit assets. LSTA is a not-for-profit trade association that includes commercial banks, investment banks, broker-dealers, hedge funds, and other institutional lenders. The template intends to provide a standard format for ESG-related disclosures and offer companies a baseline from which they can develop their ESG reporting capacity. It was designed to be completed by borrower companies and shared with their lenders. Jiří Król, global head of the Alternative Credit Council, said the following in a statement, “By simplifying and harmonizing existing market practices, this new industry-led initiative will reduce the burden on borrowers while improving the materiality and comparability of ESG disclosure for investors.”
Finsum:A group of alternative assets managers created an ESG disclosure tool that offers companies a baseline to develop their own ESG reporting capacity.
Recruiters and broker-dealer executives are gearing up for one final recruiting push this year before FINRA’s annual pause in registration. Brokers who want to change firms must move before December 22nd. That date is when FINRA halts its registration systems to generate year-end renewal statements. New registration requests for license requests and terminations will stop at 11 p.m. ET on the 22nd and then resume again on January 3rd. In anticipation of the pause, many wirehouse firms have already made plans to transfer licenses well ahead of the December 22nd deadline. For instance, Merrill Lynch set December 7th as its cut-off to prevent any foreseen registration issues. In other words, advisors don't want to be in a situation where have notified their old firms that they’re leaving but are unable to transfer accounts to their new firm. Also adding to the pause in recruiting in December is the preference of advisors to wait until the new year to change firms.
Finsum:Advisor recruiting is expected to temporarily cool down in December ahead of FINRA’s pause in registration on December 22nd.
Following Altruist’s recent announcement that is enhancing its Model Marketplace and adding UMA capabilities, the firm has now announced a partnership with ESG firm HIP Investor to provide advisors with access to its Fossil Fuel Free Portfolio models. HIP, which was founded in 2006, manages impact-themed strategies and ESG portfolios for advisors and investors. The addition of the ESG models expands Altruist’s values-based investing offerings. Adam Grealish, Head of Investments at Altruist, stated the following as part of the announcement, " With HIP’s Fossil Fuel Free Portfolios on our platform, advisors can build portfolios for any stage of their ESG journey—from dipping in a toe to full allocations to climate action and impactful investing. Our partnership with HIP Investor represents a cornerstone in our continued expansion into values-aligned and higher-impact investing." The firm is also telling advisors to expect more offerings within its Model Marketplace in the coming months.
Finsum:Altruist continues to expand its Model Marketplace with the addition of Fossil Fuel Free model portfolios managed by HIP Investor.