RIA Quick Takes: Orion deepens DFA embrace by using it as portfolio manager-inside-ETF ~ Hardship withdrawals surge at Vanguard and Fidelity ~ Schwab hires 400 ~ Fidelity flips six funds into ETFs ~ Kitces makes list before Christmas ~ Amit Dogra has $1 billion of good news from his new Portland gig
Americans are struggling, though jobs are plentiful; Larry Fink's ESG zeal costs BlackRock another client, just as the Vatican issues ESG guidance; UBS says we didn't like you anyway to mass affluent and Michael Kitces and Craig Iskowitz join forces.
10 min read- Orion now offers DFA 60/40 ETF portfolios for RIAs and IBD reps.
- Fidelity will convert six thematic funds into actively managed ETFs.
- Hardship withdrawals are surging at Vanguard and Fidelity amid inflation.
Orion and DFA are now selling 60/40 RIA portfolios to RIAs and IBD reps -- packaged in ETFs.
The Omaha, Neb., firm announced six Dimensional Fund Advisors exchange traded funds (ETF) that are actually entire portfolios with 0/100, 100/0, 20/80, 80/20 and 40/60 stock-to-bond splits.
"We’re delivering on our promise of providing advisors with a select, vetted list of premier, third-party investment managers to use when building client portfolios,” explained Ryan Beach, president of Orion Wealth Management.
All of the Dimensional models are available through the Orion Portfolio Solutions platform and Orion Model marketplace.
The two firms have quietly built a relationship over the past five years.
“Dimensional has long appreciated the work of Orion,” said Bryce Skaff, co-head of Dimensional’s Global Client Group in a release.
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Cerulli reports direct-indexing investments will outpace the growth of ETFs, mutual funds and separately managed accounts over the next five years, topping $800 billion by 2026, up from $462 billion in the first quarter of 2021.
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Fidelity Investments also just announced it will convert six 'thematic' funds collectively managing $430 million into actively managed ETFs by June 2023.
The move will lift its active ETF assets under management (AUM) to roughly $1.15 billion, but it will also slice the six funds' fees in half, from 100- to 50-basis-points.
Key shifts
Vanguard Group reports that sky-high inflation, standing at 7.75% as of Oct. 31, pushed a record 0.5% of its 401(k) investors to make “hardship withdrawals" last month.
A further 0.9% took loans against their plans, and another 0.9% made general withdrawals, Marketwatch reports.
Hardship withdrawals are up for Fidelity Investments 401(k) plans, too, climbing from 1.9% in 2021, to 2.2% year-to-date.
The IRS code that governs 401k plans considers hardships to cover everything from leaky gutters and funerals to tuition -- hence not subject to a 10% penalty.
Here are some other penalty-free withdrawal reasons:
- Medical care expenses for the participant, his/her spouse, dependents, or beneficiaries.
- Costs directly related to the participant's purchase of his/her principal residence (not including mortgage payments).
- Amounts necessary to prevent the participant's eviction from, or foreclosure on, the participant's principal residence.
- Funeral expenses for the participant, his/her spouse, dependents, or beneficiaries.
- Tuition and related expenses (fees, room and board, etc.) for the next 12 months of post-secondary education for the participant, his/her spouse, dependents, or beneficiaries.
- Expenses incurred to repair damage to the participant's principal residence*.
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Meanwhile, Americans are saving at the lowest rate since 2005, after the personal savings rate dropped to 2.3% in October, according to the Commerce Department.
The US jobs market, however, added 263,000 nonfarm jobs in November, beating analysts' expectations by 63,000 jobs. Unemployment remained stable at 3.7%, according to the Bureau of Labor Statistics.
But the good news could prompt the Federal Reserve to hike interest rates further.
Woke wars
BlackRock's Larry Fink put a black hat back on and promised to love carbon as much as the next CEO. See: BlackRock to curb ESG 'social justice' proposals with its voting power this proxy season and embrace big oil, claiming Ukraine war, Russian embargo demand climate goals reset.
Five RIA Doubletakes: BlackRock AUM tops $10 trillion as active funds make comeback • Schwab has killer quarter and Wall Street sells its shares • DFA is now the largest active ETF manager • SEC flummoxes RIAs with "inaccurate" guidance • Fidelity pulls in $146 billion in workplace assets
Yet, he is now a tree hugger non grata for life in the state of Florida.
Florida Gov. Ron DeSantis put a cool $2 billion on ice in the Sunshine State to clock BlackRock for being too "woke," because of its advocacy of ESG investing.
"BlackRock CEO Larry Fink is on a campaign to change the world. Using our cash to fund BlackRock's social-engineering project isn't something Florida ever signed up for," Florida Chief Financial Officer Jimmy Patronis says in a release.
Florida follows Missouri, Louisiana, Utah, Arkansas, and Texas that are among states slamming BlackRock's support for environmental, social, and governance-linked investing.
'It's an ecumenical matter, Father'
In news from the Holy See, the Vatican has launched its own ESG criteria that black marks investments that facilitate abortion, pornography and condoms.
The categories are grouped with other more typical ESG no-nos like weapons and fossil fuels. No word on how Florida will manage its Catholics if they get “woke.”
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Goldman Sachs Asset Management (GSAM) just agreed to pay a $4 million penalty to the Securities and Exchange Commission (SEC) over policy failures when selecting and monitoring ESG funds between April 2017 and June 2018, according to the regulator.
“Advisers like GSAM are increasingly branding and marketing their funds and strategies as ‘ESG' ... When they do, they must establish reasonable policies and procedures governing how the ESG factors will be evaluated,” says SEC deputy director Sanjay Wadhwa.
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McKinsey & Co. has published a report that states investment bankers who don't know much about ESG are going to find it harder to find work in eight years.
Why? It forecasts $100 billion of net new ESG investment banking revenues by 2030.
It's good to be rich
After ditching its attempt to buy Wealthfront -- a robo-advisor that serves the mass-affluent – UBS Group -- has decided it was always better off staying in its own lane, serving the rich and the filthy rich, Financial Planning reports.
Story Timeline
“I don't think we bring alpha in [the] mass affluent [segment], that's why we had to walk away [from Wealthfront],” chairman Colm Kelleher told his audience at a conference in London, Nov. 30.
“We bring alpha [to] high-net-worth and ultra-high-net worth [investors],” he added.
The comment brought sniggers on Wall Street about when UBS ever brought “alpha” to any market segment.
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The arrival of mass affluent investors into private equity (PE) has just had a predictable result.
Blackstone's $69 billion AUM real estate fund is limiting redemption requests after they exceeded the fund's quarterly limit. The move sent Blackstone's share price tumbling 10%. It has since clawed back 3%, as of Dec. 1.
"[This] underscores the need for continued education" about alternative investments illiquidity," says Daniil Shapiro, director for product development at Boston consultancy, Cerulli Associates, via email.
“There has been a tremendous effort to have a mix of mass-affluent, as well as high-net-worth investors, adopt intermittent liquidity product, [like] private real estate,” he explains.
Crypto winterin'
Amit Dogra is ready to put a shine on an $8B 'Dynasty-like' RIA service platform that's tired of keeping a low profile in cloudy Portland, Ore.
Over in the crypto world, the Board of Certified Financial Planners has issued a statement advising RIAs to be careful when investing in crypto currencies – one year after the asset class began its phenomenal fall from grace.
The global value of crypto investments stands at $852 billion today, down 3.5 times from roughly $3 trillion in value early in Nov. 2021, according to Coinmarketcap data.
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Crypto asset manager Grayscale also just sent fresh jitters through markets, after revealing it's $2 billion in debt. Grayscale holds 3% of all available Bitcoin, or $10.6 billion in its flagship Bitcoin fund (GBTC).
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And lastly, BlackRock CEO Larry Fink says he believes most crypto firms will collapse during the current market slump.
"[They're] not going to be around," he told his audience at the New York Times DealBook Summit, Bloomberg reports.
Faces new and old
Louisville, Ky., RIA insurance marketplace RetireOne has doled out three “chief” titles to 2022 hires Jeff Cusack, now chief distribution officer; Tom McNeela, now chief RIA solutions officer; and long-serving exec. Mark Forman, now chief marketing officer.
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Charles Schwab Corp. is stepping up its hiring in Florida.
The Westlake, Texas, firm will add 400 employees next year to its current Orlando headcount of 1,400 – a 28% jump. It will also become one of the 25 largest employers in Orlando, the Orlando Business Journal reports.
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RIA referral firm SmartAsset has appointed a new chief technology officer (CTO), Peter Silvio, a former CTO at digital imaging firm Shutterstock, who also previously worked as head of app development for Thomson Reuters.
Silvio replaces former CTO Firoze Lafeer, who left the company in May.
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And financial planning software vendor Luminant added three sales staff, nabbing one a piece from Goldman Sachs PFM (né United Capital and Ayco), Envestnet and health-lender Odeza.
Deals, promises, and partnerships
But State Street Corporation's deal to buy Brown Brothers Harriman & Co's investor services business is off, after regulatory scrutiny -- and likely regulatory demands -- torpedoed the deal, the company announced in a Nov. 30 statement.
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Elsewhere, ex-eMoney and Orion exec. Kelly Waltrich's start-up, Intention.ly, just shored up its business in the down market, buying Tina Powell's rival marketing shop, C-Suite Social Media, in a bootstrapped equity plus cash deal.
Powell is now a partner in the combined firm, and she will serve as its chief strategy officer.
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And Michael Kitces' Sears Catalog of financial technology for RIA window shoppers, the Advisor Tech Directory, has enlisted Craig Iskowitz's Ezra Group to rate how easy it is to get new software to share data with old software. See: Financial Advisor’s Guide To Choosing The Best Financial Planning Software (For You)
Kitces' and Carl Richards' podcast for RIAs also just posted its 100th episode. Richards is chief brand officer of financial planning software company Elements.
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Meanwhile, in Portland, Ore., a new executive appointment is making sure to keep his promise -- and then some.
When Amit Dogra joined TruIndependence as its president in March, he promised to lift the low-profile RIA services outsourcer to the top of the pile. See: Amit Dogra is ready to put a shine on an $8B 'Dynasty-like' RIA service platform.
Today, the firm administers $9 billion of RIA assets, an increase of $1 billion in 9 months, after it signed the business of Channel Wealth ($650 million of AUM), and Invenio ($250 million).
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Lastly, the bond market has posted its worst trailing, 12-month performance since 1926, once inflation is factored in, according to research by John Rekenthaler, Morningstar's vice president of research.
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