According to a recent report from Cerulli Associates, increased demand from financial advisors had led fund managers to include separately managed account (SMA) strategies into their model portfolios. Matt Apkarian, a senior analyst at Cerulli, told FundFire “Typically, model portfolios tap mutual funds and exchange-traded funds, but large asset managers are now seeing demand for SMAs, given their customization and tax-management capabilities.” According to FundFire, citing data from Cerulli, assets in model portfolios hit $2 trillion through the end of 2021. That was a 22% increase from the prior year. That included assets from home-office model portfolios and portfolios offered by asset managers, but excluded advisor-built model portfolios. Cerulli attributes the rise in assets to home offices directing their advisors to outsource investment management. The firm also believes that home offices will increase their model portfolio capabilities to compete with third-party strategists.

Finsum: SMA strategies are being incorporated into model portfolios as a result of advisor demand for more customization and tax management.

According to Sage Advisory in its recently released fourth annual stewardship report, ETF issuers offered much less manager disclosure and transparency regarding their ESG activities compared to their responses in the previous year’s report. The financial firm said that ETF firms had a “distinct change in tone” and “restrained language” in their responses to the survey. The firm attributes the drop in transparency to pending regulation in Europe and from the SEC that would require issuers to define ESG investments more clearly. Regulators are looking to crack down on firms that government agencies believe are overstating their fund’s ESG credentials, also known as greenwashing. The survey covered seven areas of stewardship such as proxy voting, climate and governance, and had a total of 69 questions. Based on its report, the firm believes that fines and proposed regulations could have both positive and negative consequences. The positive is that greenwashing could become less common, while the negative is that a lack of transparency could become an issue.

Finsum:As a result of pending regulations, ETF firms are becoming less transparent regarding their ESG activities.

Not only did the SEC’s Regulation Best Interest (Reg BI) take effect about two years ago, since then, its had tongues wagging, according to questce.com. The topic continued to flash plenty of energy at FINRA’s recent 2022 Annual Conference.

So, what insights have been gained since Reg Bi was implanted and, to this point, what’s clicked for firms? Have any conflicts been isolated?

A few pieces:

1.) FINRA will be Conducting Deeper Reg BI Exams

FINRA wasted no time acknowledging that, down the road, it will undertake deeper reviews of Reg Bi and Form CRS.

2.) Audits Unveiled Some Good (and Bad) Behaviors

3.) Product Decision Trees Should be Documented

4.) Training/Policies Needs to go Beyond Rule Definitions

Meantime, senators recently were informed by Gary Gensler, chair of the Securities and Exchange Commission, that additional resources are required by the agency, according to thinkadvisor.com. The exam division’s “work is essential to ensuring strong compliance across the board,” including “work to test for compliance with Regulation Best Interest,” he continued.

The enforcement division’s “doing more with less,” Gensler said in testimony before the Senate Banking Committee, the site continued.

The tip line was burning in fiscal 2021, with the agency handling 46,000 tips, complaints and public referrals, the chair added. Five years earlier, that number stood at about 16,000.

A little nip and tuck? 

Well, let’s just say someone hit refresh on ESGs, culminating in the sustainable spend report, which provides an overview of the organization’s ESG performance, according to tealbook.com. How? Details…details, eh? Well, by dispensing detailed reports of spend with ESG certified supplies. 

Emissions reduction, sustainable sourcing, energy management, and animal welfare are among ESG certifications.

Thanks to this feature, TealBook customers with Elite license, make out. That’s because – with no extra effort -- this features lifts spend data capabilities, the site continued. On top of that, customers can filter by time period, take a gander at spend based on ESG category through the report.

The site describes the sustainability spend report as “a powerful new tool that enables customers to make procurement decisions that align with their organization’s policies and business strategies.”

To help define your ESG strategy, goal setting is integral, according to getgoallab.com.

To start establishing its ESG objectives, your company can keep a few steps in mind:

*Understand the value of ESG goal setting

*Assess your ESG baseline before you set your goals

*Familiarize yourself with and set SMART (Specific, Measurable, Achievable, Relevant and Time) goals.

*Measure ESG goals and set timelines by creating KPIs

*Share and announce your ESG goals

Think only a number cruncher can efficiently convert tax losses into assets?

Well, why it might not carry engraved business cards, direct indexing also can turn that trick, according to advisorperspectives.com.

Case in point: with clouds threatening a repeat performance in the portfolios of your clients this year – especially in light of the volatility more than making its presence felt in the financial markets. Sure, with intense inflation, the Ukraine war and supply chain headaches putting a dent in corporate profits, the Fed’s stoking rates at a seemingly breakneck pace. Yeah; yowser. That said, however, the market’s volatility yields an idyllic chance to not only tax loss harvest but also showcase how direct indexing – with room to spare, most effectively experiences the reverberations of tax loss harvesting benefits, the site continues.

Against the backdrop of volatility, of course, with direct indexing, the investors owns the individual securities rather than a comingled fund, according to russellinvestments.com. While losses absorbed on receding stocks belong to them, down the line, those setbacks can be leveraged to offset gains. That can mean a significant boost toward paring down the tax bill of the investor.

Direct indexing has recently become a hot topic in the financial industry and for advisors looking to differentiate themselves from the pack, fund giant Vanguard recently identified four situations that they should consider using direct indexing. The first is tax-loss harvesting. For example, when an index is up, some of its holdings can be trading at a loss. An investor in a direct indexing strategy can sell those stocks and create a tax loss that can be used to offset taxes that are due as a result of an overall gain for the index. The firm also lists ESG as another reason. A custom index can be designed to avoid shares of firms involved with fossil fuels. The third situation is factor investing, or investing in companies that have specific factors such as growth, value, or quality. A custom index can be created to meet those criteria. The last situation Vanguard recommends is diversification. A custom index can be built to accommodate an investor that may be required to hold a certain number of shares in his or her employer.

Finsum:According toVanguard, tax-loss harvesting, ESG, factor investing, and diversification are four strategies that advisors should consider when building custom indexes.

While the SEC has been pushing public companies to improve their cybersecurity, minimal adoption of stronger cybersecurity rules has led the agency to draft new rules requiring more formal cybersecurity reporting and disclosure. The SEC proposal outlined several requirements that are designed to improve cybersecurity awareness and reporting for corporate executives and board members. The first is cybersecurity incident reporting, including current reporting about material incidents and periodic reporting about previous incidents. The second requirement is cybersecurity policies such as periodic reporting about policies and procedures to identify and manage risks. The third proposal is management requirements including management’s role and expertise in assessing and managing risk and management’s role and expertise in implementing policies and procedures. The final requirement is board oversight such as reporting on how the board of directors performs oversight on cybersecurity and disclosure of the board of directors’ cybersecurity expertise if any.

Finsum:The SEC recently drafted new cybersecurity rules for companies, including incident reporting, policies, management requirements, and board oversight.

You can, um, bank on it; as sure as taxes and a Nolan Ryan fastball – at least back in the day – for a panacea of reasons, financial advisors regularly switch firms, according to visionretirement.com.

You know; as in now you see ‘em, now, well, not exactly. Good. You get it. Let’s face it: maybe they receive more cash or chances to move their careers forward elsewhere. Whatever the case. you name it, and a bolt of lightning later, they’re out like the wind.

Of course, like many other professions, exactly when they decide to cut the cord isn’t necessarily based on when, according to financial-planning.com. There’s no idyllic time.

Naturally, it helps to have a robust relationship with clients. That way, an advisor can move on to greener pastures no matter how the market’s performing. Maybe he or she wants to upgrade their technology and a broader menu of products. On the other hand, perhaps they’re intent on leveraging on the expansion of their practice or set themselves up to call it a career.

Meantime, clients might be caught off guard when their advisors pull up stakes, noted visionretirement.com. But, hey, there’s always this: a client can maintain a relationship with an advisor or nip it in the old bud or sniff out other options.  Call it an Amazon shopping spree. Or not!

Over the past several months, financial firms are seeing an uptick in ransomware attacks. In fact, IT security professionals in the financial industry have noted that ransomware attacks have not only become more common but have also become more sophisticated. Cybersecurity professionals are seeing a new wave of threats that banks and investment firms are struggling to prevent. Over the past two years, financial firms are seeing more ransomware attacks that utilize outside service providers which are also known as ransomware-as-a-service. Firms are also seeing variants that have chosen different attack vectors, meaning they are now attacking other areas of firms such as corporate phone systems. According to Sophos’ The State of Ransomware in Financial Services 2022, 55% of financial service firms were victims of at least one attack in 2021, up from 34% in the previous year. The bigger issue for banks and other financial firms though is not just the number of ransomware threats, but their increasing sophistication.

Finsum:Financial firms are not only seeing an increase in ransomware threats, but the sophistication of attacks has also increased.

Lingering doubts over escalation inflation and the response of the Fed aside, longer duration US Treasuries and investment grade corporate debt ETFS are the cat’s meow among European investors, according to etf.com.

As of the end of July, in Europe, fixed income ETFs attracted more than $4.2bn over the past three months, according to data from Bloomberg Intelligence.

Meantime, Fitch Ratings reported that, in all likelihood, U.S. insurers will continue, unabated, to up their fixed income exchange-traded fund holdings, according to pioonline.com.

Since last December – when new guidelines kicked in in The Big Apple -- Fitch indicated it has rated 10 such ETFs. It eased the way for insurers to hang onto shares of fixed income ETFs. Until Jan. 1, 2027, shares of an ETF, for the purpose of a domestic insurer’s risk based capital report, on the condition the ETF satisfies certain criteria, in a regulation adopted by the New York State Department of Financial Services. It became effective Dec. 15.