SEC Scrutiny and CIT Popularity
Pressure Points
Welcome to this week's News Brief, a look at some of the biggest stories on Ignites.
Some tiny, defunct funds may be big headaches for WisdomTree.?The New-York based shop last week disclosed that it's expecting?at least a smack on the wrist?from the?Securities and Exchange Commission?regarding three environmental, social and governance-focused ETFs that it once sponsored. The trio of ESG strategies collectively represented just over $100 million when WisdomTree pulled the plug on them in February. But now, the firm says it has received a so-called Wells Notice, an indicator that the SEC expects to bring a case. WisdomTree noted that it has complied with all laws and regulations and will cooperate with regulators. The SEC didn't indicate the nature of the purported violations,?Joe Morris?reports. But in the past two years the SEC has hit?Goldman Sachs Asset Management?and?DWS Investment Management?with fines, claiming that they failed to maintain ESG policies within portfolios. The managers paid $4 million and $19 million, respectively.
Meanwhile,?Robinhood?is?not backing down?in its fight with the SEC over whether cryptocurrency counts as a security. The mass-affluent-focused, direct investor platform says no. Former SEC Commissioner?Daniel Gallagher, who now leads compliance at the firm, says the regulator is ignoring "years of good-faith attempts" on Robinhood's part to work with the SEC, Morris reported.
Pacific Financial Group is the latest firm to be felled by violations of the SEC's marketing rule.?The rule, which firms have been held to since early November 2022, bans advisors from using hypothetical performance in ads unless they can show the performance is what the intended audience might expect. The Bellevue, Washington-based registered investment advisor's processes for retirement models offered through its platform?did not pass muster, according to the regulator. Now the distributor is on the hook for $430,000. The portfolios included products from?American Funds,?Fidelity,?Invesco,?Janus Henderson, JPMorgan and MFS. The SEC last year warned that marketing rule violations would be an area of focus. Companies have been ordered to shell for violations in sums ranging from $50,000 to $850,000,?Beagan Wilcox Volz?wrote.
The tide appears to be receding from the last safe harbor for mutual funds.?Collective investment trusts eclipsed mutual funds?as the most popular target-date vehicle. CITs now represent 50.5% of target-date strategy assets at about $1.9 trillion, according to mid-year data from?Morningstar?Direct. Given that, unlike CITs, the mutual fund versions of these strategies can sit in accounts beyond qualified retirement plans, that means that the split in the defined contribution market is likely even wider. Just nine years ago, '40 Act funds commanded 70% of the market, Morris reported. But big sales success also brings scrutiny. SEC Chair?Gary Gensler?has expressed keen interest in figuring out how his agency could help regulate these bank products.
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Partner Content
Coming in First…
Last week, we highlighted the active firms with the biggest net outflows during the first half of 2024. In the Olympic spirit we now present the active sales leaders. JPMorgan's?Six Circles?takes gold, but not everyone in the leaderboard is part of a proprietary managed account platform. Madison Hall?parses?the data.
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