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Home Office News: Interval Funds Gain Wirehouse Traction, Schwab Preps Thematic Offering, and More

By Julie Daclag February 26, 2021

Below is a look at some changes major distributors have made to their platforms that may have flown under your radar in the past month, collected from Distributor Profiles, a service of sister publications Ignites and FundFire.

Wirehouses add interval funds

UBS Global Wealth Management, Merrill Lynch and Morgan Stanley have approved new interval funds for their platforms from KKR, Pimco and BlackRock, according to market watchers.

In recent years, there has been a surge of focus on interval funds by product development teams among both private and traditional managers as they strive to deliver alternative strategies to high-net-worth investors. While a small number of legacy products have been on platforms for years, the recent wave of interval funds didn’t begin arriving at approved lists for wirehouse advisors until 2018.

For now, the starting point for interval funds remains the registered investment advisor channel, where funds often need to raise $100 million to $200 million before they can attract wirehouse consideration, Kimberly Flynn, managing director for alternative investments at XA Investments, which builds non-traded alt funds for advisors and is a product development consultant for managers, tells FA-IQ sister publication FundFire.

"It can take 12 months – you have to get in line and be patient," she adds.

TD cancels Morningstar robo deal in favor of Schwab

TD Ameritrade canceled its deal with Morningstar Investment Management to pick funds for its robo advisor. The firm has instead hired Charles Schwab Investment Management to select investment vehicles for its TD Ameritrade Selective Portfolios and Essential Portfolios digital advice services.

TD has been working to bolster its own internal investment management capabilities, which, when paired with the Schwab affiliation, means the firm no longer needs Morningstar's services, the firm said in a Form ADV filing.

TD Ameritrade canceled the contract on February 7, and CSIM took over the following day.

The switch to Charles Schwab will have no fee changes, and TD Ameritrade will continue to manage portfolios according to their strategy mandates, said a spokesperson.

The Essential Portfolios offer exchange traded funds for a $500 minimum and 30 basis point fee. The Selective Portfolios present mutual funds and ETFs with support from dedicated financial consultants and cost 30 bps to 90 bps.

Schwab thematic offering coming this year

Charles Schwab plans to launch a new thematic investing product in the second half of the year. The product will allow investors to build stock and ETF portfolios on different themes, executives said earlier this month during the firm’s winter business update. The new offering allows greater customization and tax management capabilities.

The portfolios will be built using fractional shares — a trading capability that Schwab rolled out last summer.

The technology behind the product relies on Motif Investing, a financial technology company acquired by Schwab last year. Investors will be able to regularly update their theme based on research from Schwab and pay an asset-based fee on top of the portfolio, said Schwab chief digital officer Neesha Hathi.

Schwab CEO Walt Bettinger predicted last year that direct indexing would have a large impact on the financial industry. At this year’s event, the CEO said thematic indexing was the first step, allowing investors to customize portfolios built around trends such as artificial investing and health care.

UBS: Road to high ESG scores paved with good intentions

UBS has begun rating all separately managed account managers on environmental, social and governance criteria, aiming to assess each manager’s “intentionality,” according to Lee Giordano, UBS Global Wealth Management’s head of equity investment manager research for the Americas.

The firm has been prioritizing ESG and sustainable investing over the last two years, beginning with the scoring of asset managers on its platform in 2018.

The UBS research team begins with a general assessment of managers’ investment processes, sending out questionnaires and reviewing ESG integration. The firm then looks at all three components of ESG to try to understand how and why a given manager may emphasize one or another, says Giordano.

The research team wants to understand where the focus is and pursues numerous conversations to fully understand how the manager is trying to influence the portfolio. The wirehouse ultimately assigns scores between zero and three to different strategies.

Fidelity targets micro market with new PEP

Fidelity is targeting the "micro market" with the launch of its Fidelity Advantage 401(k), a pooled employer plan launched last month. The micro market, referring to companies with five to 50 employees who don’t have retirement plans yet, is new for Fidelity.

The PEP market opened in January, when Setting Every Community Up for Retirement Enhancement Act provisions went into effect.

With Fidelity’s Advantage 401(k), the goal is to remove administrative burdens and complex decision-making from employers and employees, said Fidelity senior vice president of defined contribution innovation Andy Schreiner, who heads the firm’s PEPs team.

Fidelity is working to onboard 10 to 15 clients this month, and participant dollars will start flowing into the plan in April, Schreiner adds.

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Tags:  Finding and winning new clients , Client retention , Technology , Investment strategies , Portfolio management , BlackRock , Fidelity , Merrill Lynch , Morgan Stanley , Morningstar , Pimco , TD Ameritrade , UBS , Schwab , KKR

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