Wealth Briefs: Allianz to pay billions in fines and restitution, Wells Fargo cuts robo minimum, unions wary of mandatory arbitration, and more

May 20, 2022 9:41 AM

Unions and some consumer organizations are asking the SEC to investigate mandatory RIA arbitration. UBS is adding model portfolios from AllianceBernstein, BNY Mellon, Fidelity Investments, First Trust, T. Rowe Price and Vanguard. Nearly two-thirds of RIAs are not using testimonial rules.

Scroll down our cardshow to see these stories, and more, in our weekly roundup of wealth management news.

Unions and consumer organizations urge SEC to investigate mandatory RIA arbitration

The AFL-CIO, the Consumer Federation of America, the Public Investors Advocate Bar Association and about a half-dozen other organizations sent a letter to SEC Chair Gary Gensler asking the regulator to investigate the growing number of RIAs using mandatory arbitration clauses in their client contracts. The pre-dispute clauses are the same as those used by brokerages requiring clients to file claims in FINRA arbitration, except they send the clients into forums with even less public disclosure and higher costs on the customers, according to the industry critics. “When an RIA intentionally names an expensive private dispute resolution provider in an arbitration agreement to act as a shield against client claims, that is the RIA putting its interests ahead of its client,” PIABA President Michael Edmiston said in a statement. “That is a breach of the RIA's fiduciary duty.”

Invesco leverages Cerulli Associates’ research for new practice analytics tool

Asset management giant Invesco tapped Cerulli Associates to provide the underlying research for a new analytics tool designed to provide financial advisors with benchmarks for business development, practice management, client service and overall wealth management. They call the program the Practice Innovation Index. “Advisors today face the challenges of addressing demands from investors, financial markets and regulators, all while striving to scale their businesses,” Asher Cheses, the associate director of U.S. Wealth Management at Cerulli, said in a statement. “To help them confront those business challenges, Cerulli and Invesco built the Practice Innovation Index, backed by the industry’s longest-running advisor survey, to provide a quantifiable tool designed to benchmark the attributes of the industry’s leading financial practices and ultimately enable advisors to help their clients achieve their financial goals.”

UBS adds model portfolios from big names to SMA platform

The separately managed account platform offered to UBS Wealth Management USA financial advisors and their clients with management fees of zero is adding model portfolios from a half-dozen of the biggest fund companies in the industry. AllianceBernstein, BNY Mellon, Fidelity Investments, First Trust, T. Rowe Price and Vanguard are joining the menu of funds available on the UBS Access platform. “Model portfolios empower advisors to focus on critically important client relationship and business development needs by streamlining investment manager research, portfolio construction, and portfolio monitoring,” Sarah Goller, the head of portfolio solutions at Vanguard, said in a statement. “We’re excited to offer UBS advisors these models which blend both active and passive exposure across a range of risk portfolios.”

Allianz Global Investors to pay billions in fines and restitution in massive case

The U.S. arm of Allianz Global Investors and three former senior portfolio managers face SEC and criminal cases alleging that the firm’s “structured alpha” options trading strategy concealed the potential downside risks to more than 100 institutional investors including pension funds for teachers, clergy members, bus drivers and others. Two of the portfolio managers have pleaded guilty to fraud and other charges, while the firm and former Chief Investment Officer Gregoire Tournant have pending raps against them in New York federal court. All of the defendants have settled the SEC’s charges, though. The agreement requires the firm to pay more than $1 billion in fines and, along with its parent, international insurer and fund giant Allianz, over $5 billion in restitution. "Allianz Global Investors admitted to defrauding investors over multiple years, concealing losses and downside risks of a complex strategy, and failing to implement key risk controls," SEC Chair Gary Gensler said in a statement. "This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing. Unfortunately, we’ve seen a recent string of cases in which derivatives and complex products have harmed investors across market sectors.”

Wells Fargo cuts minimum investment in newest version of robo advisor

Intuitive Investor, an automated investment platform offered by Wells Fargo Wealth & Investment Management, launched in its newest version available to investors with a minimum of $500 in investable assets. That’s a significant drop from the previous minimum investment of $5,000. The latest version also boosted the number of portfolios using ESG criteria and streamlined the account opening process for mobile phone users. “We have simplified the Intuitive Investor platform to create a faster and better experience for both new and experienced investors,” Michelle Moore, the firm’s head of digital for consumer, said in a statement.

Institutional investors prefer active funds to integrate ESG: Capital Group study

Almost two-thirds of investors participating in a sampling of more than 1,100 institutional and wholesale investors from pension funds, family offices, insurers, financial advisors and other professionals in 19 international markets said they prefer to use active funds to integrate ESG into a client’s portfolio. With 63% saying they prefer active funds overall, 80% picked active over passive for equity investments and 58% chose active over passive for bond exposure. “This preference underscores the complexity of assessing ESG issues and that reducing them to a single ESG score cannot capture nuanced company evaluations,” Jessica Ground, Capital Group’s global head of ESG, said in a statement. “Investors are hence turning to active managers who can focus on deep proprietary research, robust monitoring systems and engagement to analyze companies.”

Labor Department appeals court’s independent contractor ruling

The Department of Labor will seek to overturn a district court’s ruling that invalidated the Biden administration’s decision to withdraw the independent contractor rule adopted by the agency under the Trump administration. The Financial Services Institute, an advocacy organization for independent brokerages and their advisors, will continue fighting the agency in court over the rule. “The DOL’s independent contractor rule provides much-needed certainty to independent financial advisors who have chosen to be independent contractors so that they can operate their own business and better serve their clients within their communities,” FSI CEO Dale Brown said in a statement. “We plan to continue working to defend our members’ independent contractor status through the appeal process.”

Multifamily office launches outsourced services for other RIAs

Verdence Capital Advisors, a Hunt Valley, Maryland-based firm offering private wealth and family office services, is now hanging out a shingle for other RIAs and institutions seeking research and investment services. The new business unit is called Verdence/OCIO. “Every RIA, family office or institution that wants to achieve long-term growth eventually reaches an inflection point,” Verdence CEO Leo Kelly said in a statement. “We’ve been at that point, which is why we’re so excited to be launching Verdence/OCIO to provide the kind of robust options that we had to build ourselves.”

RIAs not tapping into new marketing rule: Study

Almost two-thirds of RIAs, or 64%, are not conducting advertising using newly available tools to them in the form of testimonials, third-party ratings and endorsements, according to a study of SEC Form ADV filings conducted by fintech firm Indyfin. A majority of firms left blank a section of the form requiring them to list whether they use those methods of advertising, the research showed. Just 2% of all of the RIAs said they’re currently using testimonials, for example. “What our research has shown is that there is still uncertainty and confusion within firms on how to best utilize the provisions of the rule to best position their firms for growth,” Indyfin founder Akshay Singh said in a statement. “The new SEC marketing rule is a once-in-a-generation chance to differentiate themselves and to modernize how advisors can market their firms, particularly when it comes to digital channels, one of the fastest-growing channels available.”