DATE: June 6, 2023
TO: Board of Supervisors
SUBMITTED BY: Hollis Magill, Director of Human Resources
SUBJECT: Assignment of Agreement No. 20-462 Pursuant to the Investment Advisors Act of 1940
RECOMMENDED ACTION(S):
TITLE
1. Consent to the assignment of Agreement No. 20-462 from Northwest Capital Management, Inc. to Carson Wealth Management, LLC, pursuant to the Investment Advisers Act of 1940.
2. Authorize the Director of Human Resources to notify Northwest Capital Management, Inc. of the County of Fresno’s consent to the assignment of Agreement No. 20-462 from Northwest Capital Management, Inc. to Carson Wealth Management, LLC.
REPORT
Your Board’s approval of the recommended actions will provide notice to Northwest Capital Management, Inc. (“Northwest Capital”) that the County is consenting to the assignment of Agreement No. 20-462 (the “Agreement”) from Northwest Capital to Carson Wealth Management, LLC (“CWM, LLC”), pursuant to the Investment Advisors Act of 1940. Northwest Capital requires notice of the County’s consent or objection to the assignment by June 10, 2023.
Northwest Capital has provided investment consulting services to County of Fresno 457(b) Deferred Compensation Plan (the “457(b) Plan”) since December 13, 2011 and County of Fresno 401(a) Defined Contribution Plan (the “401(a) Plan”) since April 5, 2022; the Agreement expires December 31, 2025. There will be no interruption in services provided by Northwest Capital or increase in fees associated with the recommended actions. There are no costs to the County associated with these actions.
This item is Countywide.
ALTERNATIVE ACTION(S):
Your Board may choose not to consent to the assignment of the Agreement. If the Board does not take the recommended actions, Northwest Capital has stated that they would consider it a termination without cause under Paragraph 4.C of the Agreement. This would necessitate a new Request for Proposals process, during which time the investment options in the 457(b) Plan and the 401(a) Plan (collectively, the “Plans”) would not have professional oversight, unless the County were to contract with Northwest Capital or a different investment consultant in the interim. If the County does not contract with Northwest Capital or a different investment consultant, the County would assume full liability for the investment menu during this time rather than sharing this exposure with Northwest Capital. If the Board does not take the recommended actions, the Director of Human Resources will notify Northwest Capital by their June 10, 2023 deadline and will return to the Board to initiate termination of the Agreement.
FISCAL IMPACT:
There is no Net County Cost associated with the recommended actions. All costs associated with investment consulting services to the Plans are borne by participants in the Plans.
DISCUSSION:
On November 24, 2020, the Board of Supervisors executed the Agreement with Northwest Capital to provide investment consulting services to the 457(b) Plan. On April 5, 2022, the Board of Supervisors approved Agreement No. 22-132, the First Amendment to the Agreement, to permit Northwest Capital to provide investment consulting services to the 401(a) Plan. The Agreement is for a five (5) year term, through and including December 31, 2025.
The Plans use Northwest Capital as a consultant for an independent review of the current investment options, recommendations regarding any changes to the investment options, development of investment objectives, the provision of fiduciary education services to the Deferred Compensation Management Council (the “Council”), and to monitor the performance of the Plans’ Record-keeper. In addition, Northwest Capital has provided oversight and analysis in the Request for Proposals (“RFP”) process to select the Plans’ Record-keeper.
Pursuant to an April 7, 2023 letter from Northwest Capital, the County was notified that Northwest Capital will join CWM, LLC as a wholly owned subsidiary, effective June 10, 2023, and their licenses as investment advisors will be registered under CWM, LLC. The April 7 letter stated that this affiliation is considered an assignment of the Agreement from Northwest Capital to CWM, LLC under the federal Investment Advisers Act of 1940, and sought the County’s consent to this assignment under federal law. The April 7 letter further stated that the County will have consented to the assignment unless a written objection to the assignment was received by Northwest Capital by June 10, 2023.
Consenting to the assignment under the federal Investment Advisors Act of 1940 will not change the terms of the Agreement and will not change the parties to the Agreement. However, Northwest Capital has stated to staff that, at a future date, there will be administrative changes to their billing operations, banking relationships, and SEC registration as they transition into their new relationship with CWM, LLC. Northwest Capital has indicated that some of these administrative changes may be effective as early as the fourth quarter of 2023 but has agreed to provide staff with sufficient notice of any changes before they occur to prepare any amendments to the Agreement for the Board of Supervisors’ consideration, as needed.
Effective June 10, 2023, Northwest Capital will operate as a wholly owned subsidiary and franchise within the CWM, LLC network. CWM, LLC is part of the Carson Group, which was founded in 1983 and currently manages $21 billion in assets and serves more than 45,000 families among its advisory network of 136 partner offices. Carson Group helps financial advisors and their firms by providing marketing, compliance, technology, investment strategies, succession planning, mergers and acquisitions support, and coaching.
In emails to staff dated May 3 and May 4 of 2023, Northwest Capital represented that their affiliation with CWM, LLC will add value in the following ways:
• Enhanced committee training. CWM, LLC will assist Northwest Capital in conducting periodic training webinars for members of the Council. Additionally, Northwest Capital will begin hosting fiduciary summits for Council members to attend in-person training.
• Expanding both plan sponsor and plan participant communication with timely articles and resources. CWM, LLC creates materials, such as blog posts and articles on a variety of relevant topics, monthly that the County will be able to share with participants in the Plans.
• Increase in the number and quality of research and investment professionals. CWM, LLC has members of the investment research team that are nationally recognized for their work and are often featured in national publications, television, and print media.
• Added technical support for administrative and compliance related items. CWM, LLC has four (4) attorneys on staff and 15 members of the compliance team, who will be available to the County, if needed.
• Enhanced cybersecurity and business continuity. CWM, LLC is currently in the process of becoming Service Organization Control 2 (“SOC 2”) certified, which is a type of auditing standard developed by the American Institute of Certified Public Accountants (AICPA). SOC 2 certification is designed to assess the security, availability, processing integrity, confidentiality, and privacy of data managed by service providers.
Northwest Capital has further represented that there will be no changes in the County’s day to day interactions and continuity will be maintained to greatest extent possible. For example -
• 100% of their retirement plan service team is being retained, including Brent Petty, the Plans’ lead investment advisor since the inception of the County’s relationship with Northwest Capital in 2011. Mr. Petty has been the County’s main contact at Northwest Capital, and he has consistently provided in-person presentations to the Council on the Plans’ investment options.
• Northwest Capital will continue to serve as a §3(21) Investment Consultant Co-Fiduciary Advisor as it provides services to the Plans. Pursuant to Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974, a fiduciary is a person deemed to be rendering “investment advice” to an employee benefit plan, such as the Plans.
• Investments will still be monitored according to the Plans’ Statement of Investment Objective and Policy Guidelines.
• Northwest Capital will continue to maintain all historical records regarding their work with the County. Such records include but are not limited to all quarterly reports, manager due-diligence and searches, and previous RFP projects.
Based on the information we have received, staff does not believe that this assignment will negatively impact Northwest Capital’s ability to provide services under the Agreement; in fact, the Plans may receive enhanced services based on Northwest Capital’s relationship with CWM, LLC.
REFERENCE MATERIAL:
BAI #39, April 5, 2022
BAI #40, November 24, 2020
BAI #42, November 17, 2015
BAI #34, December 13, 2011
ATTACHMENTS INCLUDED AND/OR ON FILE:
On file with Clerk - Consent to Assignment Letter from County of Fresno to Northwest Capital
On file with Clerk - April 7, 2023 Notification of Assignment Letter from Northwest Capital
On file with Clerk - Statement of Investment Objective and Policy Guidelines
CAO ANALYST:
Greg Reinke