More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
Just as the Treasury Department and Internal Revenue Service consider curbing corporate inversions, Motif Investing is hoping to ride the corporate inversion trend through its recently launched Tax Inversion Targets motif: a 25-stock tradable index of potential tax-inversion targets domiciled in tax havens.
Hardeep Walia, co-founder of Silicon Valley-based Motif Investing, a pioneer in ideas-based investing, wrote in a recent CNBC blog about the new motif that the inversion maneuver, which allows firms to buy a foreign competitor, relocate their headquarters to that jurisdiction and sidestep the 35% top federal corporate tax rate in the United States, has reached “a fevered pitch: In 2014 so far, there have been nine deals either completed or announced. Compare that to just two in 2010 and 2011 and six in 2013.”
Walia concedes that there are “risks” to this motif, the “biggest” being that President Barack Obama is able to change the tax code to make inversions impossible, “or public opinion sours on them and companies are pressured against inversions.”
Political aspersions on tax inversions aside, Walia told ThinkAdvisor in a Tuesday interview that Motif launched the tax inversion motif "from an investing perspective," because there's "a lot" of interest in corporate inversions. "There is no ETF or mutual fund that invests in tax inversions," Walia says. Motif, as a company, looks at "macro trends" that are "in the news" and creates motifs that allow retail investors and advisors "to look into these trends and act on them."
Walia writes in the blog that Motif Investing’s tax inversion motif focuses on sectors “which have experienced a lot of activity recently like health care and oil & gas; and on sectors we think are likely to in the future such as technology.”
Companies in the motif include InterContinental Hotels, ARM Holdings, TE Connectivity and Logitech.
Because the motif is “very new,” Walia says, it has a limited return history: its one-month return is 1.3% versus 1% for the S&P.
Walis cites research showing the popularity of tax inversions. “Twelve months after a tax-inversion deal, two-thirds of the companies involved in those deals outpaced the S&P 500 by an average of 13 percentage points, according to research from Empirical Research Partners; after three years, they’re ahead of the index by 22 percentage points.”