Actively managed model portfolios are becoming increasingly prominent across the retirement industry. There has been a major shift away from the antiquated approach of managing portfolios via recordkeeping systems, towards a modeling system where portfolios can be unitized at a global level and synchronized across plans, reducing the time and hassle of distributing model portfolios to plan participants.
Mid Atlantic Capital Group designed ModelxChange®, an actively managed model portfolio platform, to benefit plan participants by allowing advisors to efficiently integrate ETF and mutual fund investment strategies into 401(k) plans. We were among the first to provide this technology over a decade ago, which was a unique option compared to the primarily retail-oriented models offered at the time. As the retirement industry began to see increased demand for active management, our model platform continues to be a leader in this space.
Model portfolio trends in the industry today
As the demand and usage of models becomes more widely used, we see three key trends driving the retirement plan industry today:
- Efficiency is key. Retirement plan advisors are constantly looking for more efficient ways to manage plans, investment menus and offerings for their participants. Investors are also looking for a more efficient path toward retirement, calling for a “work smarter, not harder” mindset. The Mid Atlantic platform is a one-stop shop where managers and advisors can run different rebalances, manage allocation changes and fund swaps at a global level and see a trickle-down effect across the entire platform for their plans and participants. ModelxChange is a great way for advisors to internally run their own models, if desired, or use the third-party management features to free up more time to advance their business and relationships with current and future clients. This flexibility has also been increasingly important throughout the pandemic, as the retirement industry took a major hit and participants needed the extra one-on-one time with their advisors.
- Active management is growing. The transition from passive management to active management is another trend fueling the shift to model portfolios. Participants feel more comfortable having their investments managed by a professional money manager who is responsible for their choices. This style of management allows for a portfolio to be highly personalized to the individual investor and desired risk tolerances. After the turbulence of 2020, customized risk management is seen as essential by many investors.
- Technology is driving adoption. As in most industries, technology also plays into the increased traction for model portfolios. Technology is rapidly outpacing the older systems that have long been in place and offers more flexibility to those who have investments in model portfolios. For example, if a participant leaves their company or retires, but likes their current investments, investments from a 401(k) can be rolled over into an IRA or other type of retirement plan within the platform itself. This provides flexibility (and added value) to participants who want to take their investments wherever they go. In the Mid Atlantic platform, a rollover is possible today with a little effort, but we believe as the industry evolves, rollovers could be processed with the click of a button.. Advisors should expect to see this evolution happening sooner rather than later.
Benefits of model portfolios in 401(k) plans
Model portfolios and ModelxChange are so attractive to advisors and sponsors because of the customization, flexibility and personal touch they provide. In traditional investments, risk tolerance is based on age. Alternatively, with the active approach taken in model portfolios, advisors can plug in key points and dive into the personal risk tolerance of the individual investor, regardless of that person’s age. This offers a level of freedom not found in other platforms.
The ability to customize investment strategies encourages people to stay invested in their accounts. Far too often, early-career individuals get discouraged by a big loss and stop investing. On the other end of the spectrum, if someone nearing retirement experiences a big loss, their timeline could be completely derailed. A customizable, active management style and the increased agility it provides, can help prevent such occurrences.
ModelxChange is an open-architecture platform. Managers and advisors can build models that are not limited to plan fund lineups, offering greater flexibility. In the Mid Atlantic model portfolio platform, there are over 27,000 investments available to build into these strategies, providing managers with a large pool of options. After the initial portfolio construction, investments can be swapped in and out, as desired
The coronavirus pandemic derailed people’s lives and initiated a retirement crisis for the whole country. When stressful circumstances occur, such as the unavoidable economic struggles people have experienced over the past year, advisors need to free up time to touch base with their clients and calm their fears. An active approach to investing for retirement could be the solution that helps those impacted get back on the right track, especially when coupled with a models-based strategy that offers customization, increased efficiency and less of a time commitment compared to the outdated approaches lingering in the industry today.
For more information on ModelxChange, click here or feel free to reach out to me directly and I’d be happy to show you the efficiencies the system can provide you.
SVP Institutional Retirement Services | Mid Atlantic Trust Company
A: 1251 Waterfront Place
Welcome to the Weekly Market Summary:
Recently we’ve launched the Mid Atlantic Weekly Market Summary to provide our clients with a quick review of the market across Equities, Fixed Income and Macroeconomic Data. Our goal is to gather the critical data points from the markets as we kick off another week and to keep it as brief as possible. We hope having these insights top of mind will help you navigate the week ahead.
Market Data as of Week Ending 04/24/2020 unless noted otherwise.
Stock prices generally declined for the week as investors consider the impact of continued weakness in near term demand for many goods and services. The price of oil was an area under considerable pressure, as the price of West Texas Intermediate crude oil slumped to historic levels. Small and medium sized businesses outperformed their larger counterparts which may indicate early signs of investor optimism toward the recovery. Developed foreign stocks in Europe and Asia also declined for the week and Emerging Market stocks lagged developed foreign markets.
U.S. Treasury yields narrowly decreased as demand in the treasury market remains high across a diverse group of investors. Below investment grade corporate bonds declined last week despite strong demand for new issuance. Investment grade corporate bonds are yielding just under 3% and high yield corporate bonds are yielding more than 8%.
Jobless claims rose 4.4 million last week, bringing the total to more than 25 million Americans who have filed initial claims for unemployment insurance since the COVID-19 crisis began. Other U.S. economic data such as existing home sales, manufacturing, services, and durable goods orders recorded significant declines for the month of March. On a positive note, the House of Representatives overwhelmingly passed a $484 billion spending bill to provide additional loans to small businesses and funding for coronavirus testing and hospitals.
Please join us for our monthly webinar series, which takes place on the last Thursday of the month at 4pm ET. InfoxChange Webinar Training is a free value-added supplement of monthly online sessions covering a range of topics to assist with areas such as practice management, business development, and customer service. Contact us for more information!
The following article was compiled by Alyssa Ritchie.
October is National Cyber Security Awareness Month. Here are some useful tips from the U.S. Department of Homeland Security’s Stop.Think.Connect.™ Campaign.
• When in doubt, throw it out. Stop and think before you open attachments or click links in emails.
• Back it up. Make electronic and physical backups.
• Guard your devices. Never leave your laptop or mobile devices unattended in a public place.
• Secure your accounts. Use passwords that are at least eight characters long and a mix of letters, numbers, and characters.
• Report anything suspicious. If you experience unusual problems with your computer or device, report it to your IT department.
For information and useful cybersecurity tips, please visit www.dhs.gov/stopthinkconnect.
Mid Atlantic is excited to welcome Daniel Sterling as its new Executive Vice President of Mid Atlantic Operations. He will be responsible for all brokerage, advisory, custody, and trust operations groups within the company. In this capacity, Dan will oversee mutual fund brokerage, ACATS, asset movement and controls, custody operations, and trust and brokerage customer support operations.
Mr. Sterling began his career in 1994 as Assistant Vice President of Operations Control at Barings Securities, where his duties included financial analysis and development of policies and procedures for global cash reconciliation. In 2002 he became Vice President of Asset Servicing, Physical Operations at BNY Mellon (then known as Bank of New York) in which he was responsible for overall direction of the U.S. settlements related to trade processing, tri-party repos, time deposits, precious metals safekeeping, and all aspects of physical custody of certificated securities.
At BNY Mellon, Dan was appointed Managing Director Investment Services, Global Operations, U.S. Settlements from 2008-2016. In this role, he addressed U.S. settlement compliance issues, approved risk mitigation plans, developed operational standards, and elevated departmental presence through exemplary customer service and problem resolution. He was a subject matter expert in the areas of trading, settlement, and custody for DTC, FRB, money market and mutual funds, time deposits, repos and various other securities.
Mr. Sterling received a Bachelor of Science degree in business administration from the Indiana University of Pennsylvania.
Recently, we caught up with Dan to learn a little more about him and his new position with Mid Atlantic:
- How did you first come to learn about Mid Atlantic Capital Group?
Working with BNY Mellon, my Settlement team was looking at Pershing as an internal solution to executing and settling mutual fund trades and moving away from a third party vendor. After having some discussions between Pershing and BNYM, we expanded the meeting to add representatives from Mid Atlantic as we discussed our options. I met both Tim Friday and Nick Ventura in those meetings.
- What do you find most appealing about your decision to join the Mid Atlantic family?
Mid Atlantic does have a family feel to it, there’s an energy that is both refreshing and exciting. The individuals I’ve met throughout have been great, either in meetings, one to one at their desks, or at the water cooler. The teams seem genuinely excited about the successes we’ve had and are looking forward to more growth in the weeks and months ahead. I feel blessed to have been adopted into this family and am eager to provide all the support that I’m able.
- How would you envision success in your new role as Executive Vice President of Operations?
Scalability and Control. We need to deliver exceptional service by developing processing models which can handle the growth of the business without dramatically expanding head-count. We also need to be able to adequately demonstrate that our processing risks have been properly identified and mitigated, that the oversight/review process is thorough and meaningful and that we, as a team, continue to have confidence in the numbers that are being reported.
- “In my free time…”
I bike, mostly on the Montour trail or GAP. I recently bought a kayak, but haven’t been too adventurous with it yet. I belong to the Amateur Astronomers Assoc. of Pittsburgh and do a bit of star-gazing from their observatory in Mingo State Park. And I read a lot, mostly history and biographical books. A life goal of mine is to read at least one biographical book on every US president; I’ve covered 15 so far.
It is well documented that cybercrime attacks are rapidly on the rise, especially against small businesses. And as cybercriminals continue to develop increasingly stealthy and sophisticated tactics, unsuspecting employees are among the most frequently targeted victims.
Business Email Compromise (BEC) schemes, also known as CEO fraud, are a cybercriminal favorite. Through a successful phishing scheme or by simply visiting a public domain, scammers typically familiarize themselves in advance with knowledge of a target business’ policies and management roles. They will often then attempt to first gain the trust of an employee before eventually duping him or her into transferring fraudulent payments.
Using any inside information they’ve obtained, scammers will generate a fake email designed to appear coming from a senior management member requesting a financial transfer be made to a private account, while promising to send an invoice at a later time (which never comes). The scammers will often even ask victims if they are in the office or sitting at their desk before engaging in a discussion on how to complete a transfer. Once this occurs, the money of course does not get transferred within the organization, but rather into the accounts of online criminals. According to the FBI, CEO scams have resulted in an estimated loss of $3.1 billion.
To avoid becoming a victim of business email fraud, always be suspicious of emails demanding action not in line with your company policy,including communication appearing to be sent and authorized by senior management. Users are also urged to not click Reply if they believe the message looks suspicious. Instead, write and send a new message directly to the known corporate address of the person claiming to have sent the original message. This will remove any potential scammer from further communication.
Imagine finding yourself the guilty culprit of any of the following embarrassing, even humiliating, real-life situations…
- Emailing confidential personal or salary information to your entire firm by accident.
- Sending a job offer to the wrong person.
- Making an inappropriate remark about a supervisor or a client and accidentally emailing your message to the maligned individual.
- Typing a crude or off-color joke intended for a colleague, but mistakenly sending it to your entire department.
- Inadvertently distributing an internal sales strategy to an outside email list which includes addresses of some of your firm’s competitors.
Though these are some extreme cases, it all still boils down to practicing proper email etiquette, an essentiality in today’s competitive business environment. Here are some key points to consider when composing and sending emails:
- Email communication vs. phone call. Ask yourself if email is the most appropriate method of communication for contacting your desired recipient. In other words, does the email contain sensitive or confidential information? Would your manager, supervisor, or compliance office approve of the email if they were to see it? Or would it be more prudent to simply pick up the phone and call the recipient directly?
- Respond promptly. It should go without saying that providing exemplary customer service requires responding to your client emails in a timely manner. Most firms strive to reply to email inquiries within hours, the same business day, or by the following business day at the latest. Slow response times not only can make you appear unorganized, uncaring, and/or negligent, but can also reflect poorly on your company and may lead to being outperformed by competitors that better understand the importance of high communication speed and efficiency.
- Carefully consider the subject line. It’s crucial to provide a clear, direct, and concise subject line for two main reasons: 1) It grabs the recipient’s attention, and 2) It helps summarize the email content and allows recipient(s) to better determine whether it’s worth their time to open the email and read further (i.e. “Meeting date changed”, “Quick question about your presentation”, “Suggestions for the proposal”, etc.). Letting readers know how you are addressing their concerns or business issues should be clearly communicated in the subject line.
- Use common courtesy. All business related emails should open with an appropriate and courteous greeting (“Hello”, “Hi”, “Good morning/afternoon/day”, etc.) followed by the intended recipient’s name (unless it’s a group email). The email should also conclude with a polite salutation (“Thank you”, “Sincerely”, “Best Regards”, etc.) followed by your name. Not doing these simple things can lead to your emails being misinterpreted as demanding or terse in tone. Make it a regular practice to imagine how the recipient might intend the tone of your message.
- Keep messages clear and as concise as possible. This includes keeping sentences short and to the point, while the body of the email should be direct and contain all pertinent information. Unlike traditional written or typewritten letters, however, it costs no more to send several emails than it does to send just one. So if you need to communicate with a colleague or client about a number of different topics, consider writing a separate email for each. This not only can this help better organize your messages for future reference, but also allows your correspondent to focus and reply to each topic, one at a time.
- Demonstrate professionalism. Remember that your emails are a reflection of your professionalism, values, and attention to detail. As an educated professional representing a company that’s providing products and services to paying clients, your email communication should reflect this. This means typing complete sentences and using proper grammar, punctuation, and sentence structure. Avoid abbreviating words… and always be sure to proofread and use spell-check! Capitalize letters where necessary but never type in ALL CAPS as this can be misinterpreted as shouting. Good communication instills further confidence in clients and encourages others to want to do business with you and your company.
- Think twice about clicking “Reply All”. Use this button with careful discretion and consider carefully whether everyone copied on the email really needs to be aware of your reply. Remember, your colleagues already spend a significant portion of their day reading, composing, and sifting through emails. No one wants to have to read multiple back-and-forth emails from multiple people over an issue that has nothing to do with them. So please be respectful of these recipients’ time by not including them in group replies if no further action is needed from them. Not to mention, refraining from using the “Reply All” button also helps prevent some potentially disastrous situations like the ones that began this blog!
For advisor use only.
By now, you are likely well aware that new SEC-approved money market reform rules will soon be implemented. The regulatory environment is changing daily as new reforms and rules are expected to carry a significant impact on the qualified plan space and open architecture platforms. These changing regulations create new and unique challenges and opportunities from a compliance, product, sales, operations, and technology perspective.
Even with the wall-to-wall financial news coverage regarding money market reform, you may still have lingering questions. Michele Coletti, Sr. Vice President of Mid Atlantic Retirement Plan Services, recently compiled answers to some important and frequently asked questions concerning money market reform. Please click the button next to the questions below to view a detailed explanation.
What is money market reform?
In 2014, the SEC approved new rules under the Investment Company Act of 1940, amending the operation of money market mutual funds. The SEC is requiring Institutional money market funds to sell and redeem shares based on the current market-based valuation of the portfolio, rounded to the fourth decimal place. The rule also allows fund boards new flexibility to control heavy redemption demands to protect remaining shareholders. The goal of these new regulations is to preserve the integrity of money markets as instruments of liquidity and to ensure that the valuation of each fund is transparent to investors.
What are the new classifications of money market funds?
Effective on or before October 14, 2016, each money market fund will be required to classify itself as one of the following: Government, Retail, or Institutional. The classifications are tied to the underlying portfolio.
Government funds must hold 99.5% or more of their assets in cash or government based securities. Retail money markets will be restricted only to beneficial owners who are natural persons. Institutional funds are funds that do not qualify as retail or government.
What is the effective date?
What are the implications of the fund classifications?
Each fund’s classification has impact on shareholders, custodians, dealers, and recordkeepers. First and foremost, the classification dictates the requirements for stable versus floating NAV (referred to as “FNAV”), as well as the imposition of liquidity fees and gates.
|Money Market Funds|
|Floating NAV (FNAV)||No||Yes||No|
Secondly, the classification impacts the types of entities that can hold a position within the fund. Account eligibility is based on social code (account type), as compared to the money fund classification. In the case of retirement plans, the SEC has ruled that participants are the beneficial owners and natural persons; therefore, retirement plans are eligible to hold Retail funds. However, Retail funds are subject to fees and gates, making them potentially complex investments for daily valued defined contribution plans.
When will I learn the classification of each money fund?
Mid Atlantic is being notified separately by each issuer as the issuer’s board and portfolio managers evaluate accounts under management, portfolio composition, and future strategy. Mid Atlantic is evaluating these notices and working with the fund companies to identify accounts that might require liquidation or mapping to alternative investments. Your relationship manager will then be in touch to provide support.
Mid Atlantic has modified the TNS investment screener to validate prospective account setups against money market category and account social code to identify eligibility. Mid Atlantic has also rolled out new reports to identify holdings that will require liquidation or transfer into alternate securities or products.
When will the new TNS money market categories be populated?
What if my plans are holding positions in funds that will be ineligible on or before 10/14/16?
Since account eligibility is based on a comparison of social code and fund category, some existing accounts will become immediately ineligible to hold positions they have already funded. In those scenarios, we see a variety of potential outcomes:
- Some funds will make advance notice of force liquidations and then close the ineligible accounts on a set date.
- Some funds will map ineligible accounts into a “like fund” that supports the social code.
- Some funds will leave the account open but delist from NSCC, thereby creating a pseudo-close where no electronic trading, pricing, reconciliation, or dividend processing can occur, requiring voluntary liquidation of the account. As Mid Atlantic is notified of funds taking this approach, we will get in touch quickly to allow you as much time as possible to wind down the position. As of today, six issuers have delisted Institutional funds: Wells Fargo, Fidelity, Federated, JP Morgan, BlackRock, and Goldman Sachs. Those notices have been distributed as Service Announcements and are also posted on the MATC homepage under the Announcement section.
How many NAV strikes a day are permitted for floating NAV funds?
Will the Mid Atlantic price file contain multiple strike prices?
So how do I know what price each money market trade will receive?
Each institutional money market trade with a floating NAV fund will receive the strike price of the next NAV computation after receipt of the trade. For intraday trades, a strike price of 9:00 a.m. might be transmitted to NSCC at 10:30 a.m., and a strike price of 11:00 a.m. might be transmitted to NSCC at 12:30 p.m. A trade received by the fund at 10 a.m. would receive the 11:00 a.m. strike price.
Institutional fund trades sent during the evening hours may receive either the end of day NAV strike or the first NAV strike of the next business day, subject to the rules of each individual fund per its prospectus filing. That is why institutional fund strike times are also referred to as trade cutoff times. For this reason, we highly urge you to NOT perform price-dependent processing for any institutional money market positions.
Government and retail funds will continue to price based on end of day NAV.
When would a liquidity fee or gate occur?
How would I be notified of a fee or gate?
At this time, there is no automated mechanism for a fund to notify the industry of a fee or gate. Notification to Mid Atlantic will occur via call or email from the fund. Mid Atlantic will in turn send notifications and alerts as soon as the details of the fee or gate are confirmed with the fund.
The notice from the fund will usually be retroactive to prevent a run on the fund (i.e. an 11 a.m. gate could be announced at 11:30 a.m.), although funds can optionally announce an end of day effective time.
How do funds impose fees or gates?
When trading in funds that have fees or gates, the platform sets a flag on each sell order indicating to the fund whether the fund should impose the fee or gate or whether the intermediary will be calculating the fee and imposing the gate at the beneficial owner level. Funds also retain the right to “hard gate” a fund and ignore the intermediary’s request, thereby rejecting all sell trades to prevent a run on a fund.
The imposition of a fee or gate is determined relative to the timestamp when the trade is “in good order”. The definition of “in good order” is discretionary and determined based on who is assessing the fee or gate.
What timestamp will be used on money market liquidations?
What happens if a fund assesses a fee?
Why will Mid Atlantic not permit recordkeepers to use their own timestamping and calculate their own fees?
The new rules impose considerable compliance oversight if a contracted dealer such as Mid Atlantic allows underlying firms to timestamp orders and to independently compute liquidity fees or assess gates. Liquidity fees must be estimated on trade date, before the next NAV strike, with proceeds to be delivered to the funds via wire (outside NSCC settlement) on the next business day. Due to the extremely manual processes of liquidity fee management, and the extensive oversight by the funds of any fees not computed by the fund, Mid Atlantic is standardizing all trades as fund-assessed.
Each underlying Mid Atlantic client performs recordkeeping on many different software systems and many versions/releases of those systems. Given the potential variances across underlying firms based on software systems and internal controls, allowing an underlying firm to monitor fees and gates is not feasible since Mid Atlantic will be subject to very stringent audit controls and oversight by the funds specific to money market trading.
What is the impact to same day/cross family transfers and exchanges?
Will Mid Atlantic custody or trade money markets in a super omnibus account?
What if my firm is a bank/trust with omnibus positions?
What is the impact to fee disclosures and fact sheets?
What other system changes should I anticipate with money market reform?
Note that money market NAVs can now run to four decimal places, thereby impacting calculations throughout all trading, transfer agency, and sub systems for confirmations, dividends, transfers, and other activity. Reports will also require updating to accommodate the longer price precision.
All account valuations will be performed at end of day NAVs, but accounts with FNAVs may have specific trades performed at values not reflective of the end of day NAV.
Mid Atlantic will not edit any inbound or outbound client file layouts. Some systems already read the “fee” field in a confirmation record and others do not. If you remain in funds subject to fees and gates, please consult with your system vendor to determine if your confirm import will recognize a liquidity redemption fee in a confirmation or settlement record.
What happens next?
One alternative platform solution available through Mid Atlantic Trust Company (MATC) to help accommodate these new reforms is DepositxChange®, an FDIC insured service. DepositxChange® seamlessly connects 401(k) participants and banks to provide participants with a cash deposit within their retirement account, whether it is part of a qualified defined contribution plan space model or a standalone investment.
We invite you to read an excellent article written by John Humphrey, COO of July Business Services, a valued business partner of Mid Atlantic, discussing the new SEC-approved Money Market Fund rules taking effect on October 14, 2016.
In the article, Humphrey urges advisors and plan sponsors to not delay with choosing a new money market fund or cash investment solution prior to the effective date.
(Click here to read Money Market Rules for 401(k) and Other Qualified Plans.)
As an alternative solution, MATC now provides an FDIC insured service called DepositxChange®, which seamlessly connects 401(k) participants and banks to provide a cash deposit solution within the participants’ 401(k) accounts. This can be used as part of a qualified defined contribution plan space model or as a standalone investment.
Please click the hyperlink below for additional details:
If you have any questions, you may contact your Mid Atlantic relationship manager by calling (800) 693-7800.
Mid Atlantic Trust Company is very excited to be featured in the latest issue of 401(k) Specialist Magazine, the only publication exclusively dedicated to retirement plan advisors. In it, John Humphrey, COO of July Business Services, has penned an article discussing the latest technology currently available for efficiently offering separately managed accounts in 401(k) plans, including Mid Atlantic’s ModelxChange® platform.
Mid Atlantic is proud to share an outstanding partnership with July Business Services as well as 3D Asset Management, a portfolio manager also highlighted in John’s informative article.
Please click here to read the article in its entirety.
Also, if you are not yet a subscriber to 401(k) Specialist Magazine, we invite you to become one by clicking here.