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Q: What technologies are having the greatest impact on sales and distribution?
A: Given the magnitude that technology continues to play within the financial services industry, FUSE fielded a survey earlier this year to specifically determine the technological impact on the sales process of investment products. Survey respondents rated how certain technologies will impact sales and distribution over the next three years. On average, survey respondents stated that tablets would have the most impact on sales over the next few years. In fact, nearly 30% said they will change the face of sales forever. More than half (57%) of survey respondents provide tablets to sales/distribution personnel. Also, larger firms have adopted the use of tablets at a faster pace than smaller firms, in addition to firms with a retail focus compared to firms with an institutional focus. Cloud computing was ranked second for having the greatest impact on sales and distribution over the next three years. Cloud computing has become an emerging theme that is gaining investor attention. Forrester Research projected total public cloud revenues to rise 27% annually to nearly $160 billion in 2020, up from $15 billion in 2010. IDC also predicted that while global IT spending increased by 6% in 2011, spending on public cloud computing services will grow five times faster.

Q: Will the ETF industry maintain its momentum moving forward?
A: We do see ample opportunities for the industry to expand; however, the pace at which ETFs are bringing in new assets is no longer growing at the clip that we’ve seen in past years. In fact, AllianceBernstein recently forecasted that the $1.1 trillion U.S. ETF market will grow by a compounded annual rate of 13%, hitting $6 trillion by 2025, far below expectations of a $10 trillion industry by 2025. In terms of actively managed ETFs, the industry hit a recent roadblock with the SEC’s rejection of Huntington’s request to convert an open-end fund to an ETF. Had Huntington received the green light, we expected other firms to follow its lead. As noted in Barron’s, Citigroup reported that it is getting more difficult for new fund companies to stand out. The ETF industry remains highly concentrated—the top 10 ETF providers account for 95% of AUM. Also, the article highlights that new products account for 2% of industry ETF growth so far this year, down from 6.4% last year. 

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Total estimated outflows from long-term mutual funds were $11.51 billion for the week ending Wednesday, October 15, according to the Investment Company Institute (ICI). Amid fears about a slowdown in global economic growth, all broad categories experienced redemptions with the exception of Municipal Bond’s intake of $621 million. Domestic Equity and World Equity suffered $5.0 billion and $775 million in net outflows, respectively—the largest redemptions from stock funds since early July. For the third consecutive week, Taxable Bond remained in negative territory with $4.5 billion in net outflows. Investors pulled nearly $1.2 billion from Hybrid funds, representing its largest outflows since November 2012.

Source: Investment Company Institute

Total estimated outflows from long-term mutual funds were $2.70 billion for the week ending Wednesday, October 8, according to the Investment Company Institute (ICI). Taxable Bond continued in the red with $4.6 billion in net outflows. Investors pulled $21.0 billion during the prior week—the biggest outflows since late June 2013, with $28.1 billion amid fears that a pullback in the Fed’s bond-buying program would trigger higher interest rates. The most recent outflows are attributed to the surprise resignation of Bill Gross. PIMCO Total Return Fund suffered withdrawals of $23.5 billion in September. Meanwhile, World Equity led sales with $1.6 billion while Domestic Equity continued in negative territory with $533 million in net outflows. After eight consecutive weeks of inflows, Hybrid funds slipped into redemption mode with $40 million in net outflows.

Source: Investment Company Institute

Don't Miss This (10/14/14)
1) Investor Use of Advisors Inches Up in 2014, Survey Says
    Financial Advisor | 10/9/2014

Because… The increased use of advisors is positive news, but the disconnect between advisors and clients still exists in many different areas. If advisors can close the gap and obtain a better understanding of what’s on their clients’ minds, we believe more individuals will turn to advisors for financial advice. Sometimes advisors do not realize their clients’ views are different from theirs, so it is important for advisors to listen to investors’ needs and top concerns, provide specific guidance and feasible options, explain and justify recommendations, and ask for feedback.

2) Janus Capital Group Inc. Announces Agreement to Acquire Exchange Traded Product Provider VelocityShares
    Janus | 10/13/2014

Because… The acquisition is putting Janus, which has not had any ETFs in its product line, into the ETF game right away. As we have learned from past ETF deals, not all result in a success. Since VelocityShares teams up with white-label service providers such as ALPS and Exchange Traded Concepts, the value of exemptive relief is obviously not a consideration for the purchase. VelocityShares’ platform for innovative product solutions, its focus on institutional clients and other more sophisticated investors, and the expertise of its management team may be key factors behind the deal.

3) Fidelity's Abigail Johnson Gains CEO Title from Her Father
    Reuters | 10/13/2014

Because… The dust has finally settled as Fidelity put to rest the speculation about its leadership succession plan. While her experience of working in different divisions within the organization should ease her into the new role, Abby Johnson will still have a lot of work cut out for her. The investor shift to passively managed products, lagging performance of its actively managed mutual funds, substantial redemptions from retail investors, competition from other RIA custodians, and the consolidation of retirement plan recordkeepers are among the challenges she will face.

Don't Miss This (10/7/14)
1) Vanguard Blocks 'Hot Money' into Bond Funds amid Pimco Outflows
    Reuters | 10/1/2014

Because… Several other firms, such as DoubleLine, TCW, BlackRock, and Western Asset, are capitalizing on the investor exodus from PIMCO, but Vanguard is the only firm we have heard that is tightening controls for cash inflows. The surge of hot money could hurt a fund’s trading flexibility and liquidity. Vanguard has already been the industry’s top selling firm for the past few years. Bringing in short-term money is of less importance than protecting existing shareholders’ interest, an endeavor that can attract more serious long-term investors down the road.

2) Great Recession Flips the Script for Boomers and Millennials
    Business Wire | 10/2/2014

Because… The latest MFS survey that discovered baby boomers consider growth maximization their primary goal whereas millennials focus on income generation is both interesting and thought-provoking. It reminds financial firms to reevaluate the effectiveness of their financial education programs. Individual investors apparently need help with assessing their risk tolerance level, time horizon, and financial situation, and making sure their asset allocation strategies are consistent with their investment objectives and priorities.

3) How Google Is Poised to Become a Dominant Investment Manager
    Forbes | 10/6/2014

Because… While the tech giant will not pose an immediate threat to asset management firms, the idea of Google to enter the fund industry is not impossible after all. It has the advanced technology to analyze economic trends and examine the customer database to reach out to loyal clients. Stringent regulations and investors’ reliance on traditional asset managers to provide insights and perspectives may hinder the firm from establishing a footprint now, but asset managers need to monitor the movement and think about ways of coping with the potential competition.

Don't Miss This (9/30/14)
1) Hispanics Optimistic About Their Futures, Financially Motivated to Protect Their Families
    PR Newswire | 9/18/2014

Because… Financial firms are starting to target the Hispanic market because of their growing population and economic importance. Hispanics in general have a lower level of savings than non-Hispanics, as they are less likely to have access to employer-sponsored retirement plans and to receive financial education from their employers. Financial firms need to evaluate market opportunities and determine the most effective approaches to enlighten, engage, and empower this ethnic group.

2) Eaton Vance Announces Filing of Fourth Amended Exemptive Application for Exchange-Traded Managed Funds
    PR Newswire | 9/25/2014

Because… Eaton Vance’s fourth amended application may signal the eventual approval of exchange-traded managed funds (ETMF) by the SEC. While we still cannot predict whether or when the SEC could give the green light for non-transparent ETFs, investor education would be essential for their acceptance of ETMFs if the investment vehicle is brought to the market. The inner workings of non-transparent ETFs are more complicated than transparent ETFs or mutual funds. As investors are taught to put their hard-earned money into products they feel comfortable with, they may not be able to embrace the new offerings right away until ETMF mangers provide more education.

3) PIMCO CIO William H. Gross to leave the firm
    PIMCO | 9/26/2014

Because… You simply cannot miss the news that has shocked almost everyone in the industry. Although the firm quickly announced the appointment of Daniel Ivascyn as the new CIO and put together a crisis control campaign, Bill Gross’ abrupt departure will inevitably have a significant impact on PIMCO’s business. The client confusion about management rift, the SEC investigation of the Total Return ETF’s pricing, accelerated redemptions from its flagship fund, and the lowered employee morale are among the challenges the new management team has to cope with.

Total estimated outflows from long-term mutual funds were $419 million for the week ending Wednesday, September 17, according to the Investment Company Institute (ICI). Amid concerns that the Federal Reserve may raise interest rates, investors pulled nearly $1.3 billion from Taxable Bond funds. Municipal Bond managed to gather $517 million during the week, but the total for bond funds remained in negative territory with $755 million in net outflows. On the other hand, investors poured $2.1 billion into World Equity while Domestic Equity suffered nearly $2.0 billion in net outflows. Hybrid funds only collected $179 million, a significant drop from the $1.1 billion in net inflows during the prior week.

Source: Investment Company Institute

Don't Miss This (9/23/14)
1) Morgan Stanley Adds 'Impact' Portfolios in Brokerage
    Investment News | 9/17/2014

Because… Institutional investors, such as pension plans, endowments, and foundations, have appeared to be more committed to sustainable and impact investing as they consider social responsibility a part of their fiduciary duty. In the retail space, investors are leaning toward the generation of competitive returns in a low-rate environment and the lagging performance of some sustainable investing products may have curbed investors’ enthusiasm. With wirehouses like Morgan Stanley pushing into the sustainable investing, advisors and their clients who are concerned about making a positive social impact may reconsider their portfolio construction principles.

2) Largest Commission-Free ETF Program Now Offers Even More: Schwab ETF OneSource Deepens Bench of Providers and Expands to 180+ $0 Commission ETFs
    Schwab | 9/18/2014

Because… The expansion of the ETF OneSource program is different from last time as new ETF managers have been added to the roster. This indicates that the rapid growth of the platform, its asset-gathering capability, and its potential to attract more advisors, and individual investors have not gone unnoticed among ETF providers. The fact that even some large ETF sponsors, such as WisdomTree and PIMCO, are joining OneSource has demonstrated the distribution clout of this ETF supermarket.

3) SEC Finds Misrepresentations by Hedge Funds, Bowden Says
    Bloomberg | 9/18/2014

Because… Deceptive conducts, such as misrepresentations of performance in advertising and marketing materials and changes of valuation methodologies to present only the most favorable results, can mislead investors, hurt hedge fund firms’ reputations, and diminish their credibility. To win the investor trust, hedge fund managers need to have disclosure and valuation policies in place and strictly adhere to the stated policies. While the SEC’s scrutiny helps reduce fraudulent behaviors, hedge fund managers themselves should be fully aware of the harm and risks posed by illegal practices.

Total estimated inflows to long-term mutual funds were $3.79 billion for the week ending Wednesday, September 10, according to the Investment Company Institute (ICI). Redemptions from Domestic Equity tapered from $5.3 billion during the prior week to $1.3 billion in net outflows. As the European Central Bank announced new stimulus measures, World Equity drove sales with nearly $2.6 billion in net inflows—doubling its intake of $1.3 billion during the prior week and marking its largest intake in five weeks. Although Taxable Bond managed to stay in the black with $704 million, it marks a sharp decrease from the $1.8 billion gathered a week earlier. Municipal Bond gathered $841 million, a 27% increase from its total during the prior week. Hybrid funds nearly doubled its intake from the prior week, claiming $1.0 billion in net inflows.

Source: Investment Company Institute

fuse survey
Currently, passive strategies account for 23.8% of mutual fund and ETFs assets under management. What will that number be in five years? 25%
Greater than 40%

General Membership Meeting
- 5.01.13
Mutual Funds and Investment Mangement Conference
- 3.17.13

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