North Pier Search Consulting featured on the latest Institutional Investor article on the No.1 reason institutions fire their OCIOsPosted: October 16, 2019
Institutional Investor recently featured North Pier’s managing partner, Jim Scheinberg & senior consultant Greg Metzger in its recent article on the top reason why institutions end up firing their Outsourced CIO.
Read the whole article here.
BenefitsPro, 3 things plan sponsors should know about advisors who won’t stop calling – Jim ScheinbergPosted: October 7, 2019
Read our Managing Partner, Jim Scheinberg‘s latest article on why advisors won’t stop calling plan sponsors.
Read our latest article about selecting the best OCIO in an increasingly crowded market.
Read the article here: https://www.ai-cio.com/news/tips-searching-best-ocio-growing-market/
Jim Scheinberg is featured on the latest Institutional Investor article the OCIO Industry’s lack of data standardsPosted: September 23, 2019
Institutional Investor recently featured North Pier’s managing partner, Jim Scheinberg in its recent article on the lack of track record standards in the OCIO industry and what he and fellow industry peers are trying to do about it.
The OCIO industry is still “like the Wild West… the industry has zero standards,” Jim told Institutional Investor.
#OCIO #InvestmentManagement #DataStandards
By: Joshua Mackenzie & Jim Scheinberg
The Global equity markets continued their bouncy ride in the second quarter. Emotional jitters reversed the rebound rally of the first four months of 2019 with a dramatic pullback in May, only to see investors regain their optimism in June. Concerns over a potential of the economic slowdown in late 2018 or even 2019 have been sporadically weighing on investors’ minds. Flare-ups in the trade dispute with China and conjecture about the future direction of the Fed have been the most significant reasons for the waves of occasional doubt that have gripped the markets earlier in May and then again as we began the month of August. Investors don’t seem to know what they want. For much of the Spring, Wall Street was clamoring for an aggressive 50 basis point Fed funds rate cut to stave off an uncertain low down in the economy. The rancor was so high that the street might have bullied the Fed into a compromise 25 basis point cut in July (which was initially seen as not enough).
This cut and foundational fears have been largely unsupported by economic reality. Though most indicators are not showing robust growth conditions, we have certainly not seen any hard evidence that we are rolling over into a recession. We may have grown so used to a booming economy, that anything less seems intolerable. In fact, two Fed governors agreed, voting against the July cut altogether. Boston Fed President Eric Rosengren felt that “the economy is doing perfectly well without that easing.” How can it be that the street thinks we are heading off a cliff without massive intervention, while two Fed governors see the economy as healthy is bewildering. Nonetheless, that is the emotionally fragile state that the capital markets presently find themselves.
How the Markets Fared
With all the fear about the near-term prospect for the economy, came buying of U.S. Treasuries across the spectrum. While futures for short-term rates were predicting the probability of a 50 basis point rate cut, yields on the long-end of the interest rate curve were dropping as well. The bellwether 10-year Treasury yield fell from 2.4% at the end of Q1, to 2.0% just one quarter later. This helped drive returns of over 3% for the most high-quality fixed income for the quarter. As the dollar was stable, international debt instruments saw similar moves during Q2. Oddly, despite concerns over the future prospect of the economy, high yield bonds largely held their ground. With credit spreads only widening modestly during the quarter, high yield also enjoyed better than 2% gains. Even emerging market fixed income was able to join the party, also posting 3%+ total returns.
While bond prices were on a steady climb, causing yields to seek lower levels, stocks were on a more adrenaline-pumping journey. Though not quite as dramatic as the nearly 10% round trip that markets took in December and January, the S&P 500 did retreat steadily over 6% in May, before rebounding fully in June. June’s strength allowed many U.S. indexes to finish the second quarter at or near all-time highs. Large and mid-cap U.S. stocks netted better than 4% gains for the quarter. Small caps (which had benefited substantively from the corporate tax cuts in 2018) saw more modest returns during the quarter. Developed international market equities also saw similar gains. With European banks struggling with near-zero percent interest rates, international value stock underperformed those of the more growth-oriented industries. Here at home though, there was little dispersion between the spectrum. Emerging markets lagged mostly due to concerns over China (and trade-related spillover). However, Latin American markets avoided those concerns, advancing similarly to their peers in North America. This was despite a modest retreat in commodity prices during the quarter, which usually would have caused a headwind for Latin American equities.
The juxtaposition is confusing. How could yields on U.S. Treasuries be in rapid decline due to fear about future economic prospects while stocks are forging new highs at lofty valuations? Labor markets continue to stay strong with no signs of major layoffs and steady wage growth. Home values, while not booming, are holding their own with modest advancement on average. These two conditions have led to generational highs in consumer confidence regarding their present conditions and rosy outlooks for the future. However, we are starting to see pullbacks in the business sectors’ optimism, with Purchasing Managers Indexes both domestically and abroad indicating that the economy is moderating (yet notably not in decline). Perhaps a criticism that is often leveled on the Millennial Generation applies to the modern-investor generation, we have grown intolerant of discomfort. Alternatively, perhaps our market now more closely resembles our deeply-divided political system. Maybe the investor class is two major parties of investors with vastly differing sentiments. One group that euphorically continues to gobble up equities as they rack up record earnings and forge higher and higher stock prices, while the other is nearly depressive, panicking at any negative headline or Presidential Tweet. Perhaps both groups need a gigantic dose of Prozac to even out their emotions. If so, perhaps our PIERspective should be… run out and buy pharmaceutical stocks. With the 2020 election season right around the corner, we may all need something to calm our nerves.
Greg Metzger is featured on latest PLANSPONSOR article on what plan sponsors should do if their recordkeeper is merging or getting acquiredPosted: August 26, 2019
Gregory Metzger, our Senior Consultant and Search Practice Leader was featured in PLANSPONSOR’s most recent article on “Plan Sponsor Due Diligence During Recordkeeper Acquisition“, by Rebecca Moore.
“Doing nothing is a decision! Accepting a conversion without evaluation is not prudent. It is in the best interest of the participants to evaluate service. Change may not be necessary but a well-informed decision is required.” – Greg Metzger
Read about the important due diligence plan sponsors should consider when recordkeepers are acquired or merged here.
By: Brant Griffin
SEC Adopts Best Interest Regulations
On June 5, 2019, the Securities and Exchange Commission voted to adopt Regulation Best Interest (Regulation BI). The SEC’s action, supported by the broker-dealer industry, comes a year after regulators first proposed the package of initiatives. The Regulation is designed to raise the advice standard for broker-dealers when making investor recommendations above the current suitability rule. In a 3-to-1 vote, the commissioners approved the Regulation Best Interest and other initiatives to enhance disclosures and to provide greater transparency to investors with their relationships with broker-dealers.
Many investors believe that the advice they receive from financial professionals is objective when it is often biased in favor of investments that produce the greatest revenue or a tangential benefit for the advisor or firm. While the Best Interest Regulation would represent an improvement over the low-threshold suitability standard, many industry participants and investor advocates opposed the regulations on the grounds that it did not go far enough to protect investors’ interests.
Currently, the laws governing the standards of conduct for providing advisory services is nothing short of chaotic. Opposing rules apply different legal frameworks depending on the structure of the organization providing the services. As a result, some investors receive substantially different standards of advice depending on the type of organization they have engaged in.
A fiduciary relationship is viewed as the highest standard of advice available under the law and requires the fiduciary to put the clients’ interests first when making investment recommendations. Currently, a non-fiduciary stance subjects investors to a different, less demanding, “suitability standard” where their investment recommendations must simply be “suitable” for the client at the time the investment is made. This standard does not legally obligate a broker or firm to put the interests of their clients ahead of their own. In fact, it permits them to do the opposite.
Regulation BI attempts to substantially enhance the broker-dealer standard of conduct to serve retail investors better. Supporters say that this represents an improvement over the current “suitability” standard that brokers are held to today.
The Regulation BI and related requirements become effective 60 days after publication in the Federal Register. At present, by June 30, 2020, registered broker-dealers must comply with the new regulations.
Regulation BI has a “general obligation,” which requires that a broker or broker-dealer comply with four-component obligations when making a recommendation to a retail customer. The general obligation requires broker-dealers and their brokers to act in their clients’ best interest when providing investment recommendations without placing their financial or other interests ahead of the investor’s interests.
Further, the rule extends to all account types, including individual retirement accounts and recommendations to roll over or transfer assets in a workplace retirement plan account.
The regulation provides that there is a “general obligation” to act in the customer’s best interest and is satisfied by complying with the following specific obligations:
- Disclosure Obligation: Broker-dealers or associated person must disclose material facts about the relationship and the investment recommendation. These disclosures include the capacity the broker is acting, fees, type, and scope of services provided, any limitations, and if the broker-dealer provides investment monitoring services.
- Care Obligation: Broker-dealers or associated person must exercise reasonable diligence, care, and skill when making an investment recommendation. The potential risks, rewards, and costs with the investment recommendation must be understood. These factors must be considered in light of the customer’s investment profile to ensure there is a reasonable basis to believe the recommendation is in the client’s best interest. The final regulation explicitly requires the broker-dealer to consider the costs of the investments before making a recommendation.
- Conflict Obligation: The broker-dealer must establish, maintain, and enforce policies and procedures intended to identify and disclose conflicts of interest. Specifically, policies and procedures must be maintained to:
- Mitigate conflicts that create an incentive for the associated persons to place their interests ahead of customers.
- Prevent material limitations on investment offerings (such as proprietary only investment menus) from causing the firm or associated persons to place their interests ahead of their customers.
- Eliminate sales contests, sales quotas, bonuses, and non-cash compensation that are related to the sale of specific securities.
- Compliance Obligation: Broker-dealers must establish, maintain, and enforce policies that are designed to ensure compliance with the regulation.
The proposal includes a list of activities that fall outside the scope of a recommendation, including:
- General financial and investment information
- Descriptive information about an employer-sponsored retirement plan
- Certain asset allocation models
- Interactive investment materials that incorporate the exclusions
Furthermore, the SEC also adopted new rules that require both broker-dealers and RIAs to provide investors with a “customer relationship summary” (Form CRS) that summarizes the investment relationship. Firms will summarize information about the investments, services, fees, conflicts of interests, standards of conduct, and the disciplinary history of the firm and its representatives.
The regulation does not apply the existing RIA fiduciary standard to broker-dealers and is not a fiduciary standard. The general obligation does not propose to require broker-dealers to make conflict-free recommendations. It does, however, require broker-dealers to take steps to reduce conflicts of interest that might encourage a conflicted recommendation. Products that have higher costs, risks, or produce higher fees to the broker-dealer may be offered if each of the four components is satisfied.
Many practitioners believe that all investment and financial advice should be held to a fiduciary standard because the cost to those receiving conflicted investment advice is too high to ignore*. Wall Street has a strong financial incentive to maintain the status quo, and critics believe there is too much money being made to effect real change – and again investors’ interest will be subordinated to the interests of Wall Street.
* According to the White House’s Council of Economic Advisors, the cost of tainted investment advice is approximately $17 billion annually.