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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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Don't Miss This (9/16/14)
1) CalPERS Eliminates Hedge Fund Program in Effort to Reduce Complexity and Costs in Investment Portfolio
    CalPERS | 9/15/2014

Because… Calpers’ decision to shed the $4 billion investment in 24 hedge funds and 6 hedge fund-of-funds is a huge blow for the hedge fund managers it has worked with, but the pullout should open up new opportunities for other liquid alternative asset managers, especially those that provide less complicated strategies with lower costs. As the largest U.S. public pension fund, Calpers’ asset allocation moves are closely watched by many in the investment industry. We believe other plan sponsors looking to increase the weight of hedge strategies in their portfolios may reassess costs and benefits of their hedge fund exposure.

2) Financial Services Providers Failing to Connect with Millennial Generation, According to New Study by BNY Mellon & the University of Oxford
    BNY Mellon | 9/15/2014

Because… Firms that have welcomed social media with open arms may be taken aback by the survey result that reveals less than 1% of Millennials want financial services providers to connect with them through social media. Although this finding should not put a stop to the use of social media, firms that expected it to be an effective way of engaging investors need to reconsider how to make the most use of the technology to deepen the connection with this young generation of investors.

3) New DC Thinking Based on DB Best Practices
    Plansponsor | 9/16/2014

Because… For DC plans to evolve into a better retirement savings system, providing DB-like benefits, such as income replacement, will significantly increase plan participation and contribution rates. However, DB-ization of DC plans, no matter how appealing the concept is to plan participants, is complex to implement in reality. DC plan sponsors may not want to offer some retirement income solutions due to fiduciary concerns, while product providers in the fund industry are still searching for a cost-effective, guaranteed source of income.

Total estimated outflows from long-term mutual funds were $1.05 billion for the week ending Wednesday, September 3, according to the Investment Company Institute (ICI). Investors withdrew $4.0 billion from equity funds, its largest outflows in nine weeks. Domestic Equity suffered $5.3 billion in redemptions while World Equity gathered $1.3 billion. Although Taxable Bond drove sales with nearly $1.8 billion in net inflows, this intake marked a decrease from the $2.8 billion gathered during the previous week. Municipal Bond collected $661 million in net inflows—a slight dip from the $734 million posted the prior week. Following the same trend, Hybrid funds gathered $544 million in net inflows, marking a significant drop from its intake of $943 million from the previous week.

Source: Investment Company Institute

Don't Miss This (9/9/14)
1) Retirement Plan Landscape Stabilizing as Fewer Fortune 500 Companies Shifting Defined Benefit Plans to 401(k)s, Towers Watson Analysis Finds
    Towers Watson |  9/4/2014

Because… The Towers Watson analysis showed that the number of traditional DB plans declined from 251 in 1998 to 34 in 2013 whereas the number of DC plans increased from 195 to 382 during the 15-year span. While the shift from DB to DC plans may reduce employers’ fiduciary responsibility of managing the retirement assets, it does not mean plan sponsors should sit on the sidelines without providing adequate assistance. Plan sponsors need to be more proactive in engaging their workers to save for retirement, offering advice on asset allocation and risk management, and incorporating retirement income solutions.

2) MFS Investment Management Names Co-Chief Executive Officers
    Business Wire  |  9/8/2014

Because… The announcement of promoting Michael Roberge to Co-CEO should generate positive publicity for MFS, which ranked #7 among all long-term mutual fund and ETF managers for YTD net flows as of the end of July. A growing number of asset managers have evaluated the competitive environment that they operate in and revisited the corporate management team structure. By sharing the firm’s strategic vision and initiatives the firm is implementing with the public, MFS is giving investors more confidence in its future growth.

3) BB&T to Acquire The Bank of Kentucky Financial Corp.
    PR Newswire  |  9/8/2014

Because… Although the deal size is on the small side, it has broad implications for the banking industry. Community banks now operate with rising compliance costs under heightened market pressure. The concerns about reduced earnings and profitability lead some smaller banks to contemplate a sale. Meanwhile, these banks may provide unique services that target local residents, which makes them very appealing to larger national banks looking to expand their service regions and offerings.

Don't Miss This (9/2/14)
1) Retirement Plan Industry Trends Then Versus Now
     Plansponsor  |  8/28/2014

Because… The Employee Retirement Income Security Act (ERISA) was signed into law forty years ago on September 2. A review of the past and the present would help industry professionals contemplate how to move into the future. The retirement plan industry has changed dramatically over the past four decades. Although some developments, such as the establishment of fiduciary standards, the passage of the Pension Protection Act that provides a safe harbor for automatic features, and the fee disclosure requirement, have helped workers better prepare for the retirement, the industry should make greater efforts to enhance public awareness of retirement savings needs and increase the enrollment in retirement plans.

2) WBI Shares Hits $1 Billion Milestone Their First Day Out
    Business Wire  |  9/2/2014

Because… Raising more than $1 billion on the first trading day is remarkable for a new issuer, considering these funds have not established a track record and they are not offered by a well-recognized leading player. While quite a few asset managers are seeking opportunities in non-transparent active ETF space due to front running concerns, the asset-gathering success of WBI indicates transparency should not be a major hurdle in the active ETF arena and there is plenty room for actively managed ETF sponsors to grow their business if they have developed a compelling value proposition.

3)  Rafferty Asset Management Closing Five Leveraged Exchange-Traded Funds
     PR Newswire  |  9/2/2014

Because… Direxion is not alone in shutting down its ETFs. PIMCO and iShares also filed last month to dissolve their ETFs. With ETF providers bringing more funds to the market, the competition has become more intense than ever. A large number of ETFs are unable to raise $100 million, a break-even point for profitability, which should spell further possibilities for product rationalization. Narrowly focused funds exposed to subsectors of a specific industry or targeted geographic areas are more likely to become candidates for elimination.

Total estimated inflows to long-term mutual funds were $8.46 billion for the week ending Wednesday, August 20, according to the Investment Company Institute (ICI). All broad asset classes experienced inflows. Domestic Equity posted $738 million in net inflows, a reversal from outflows experienced since April, while World Equity gathered $1.9 billion. Investors poured nearly $4.2 billion in Taxable Bond and $814 million into Municipal Bond, quite the improvement from the $8.2 billion in redemptions during the week ending August 6. Hybrid funds collected $827 million in net inflows—a 67% increase from the prior week.

Source: Investment Company Institute

Don't Miss This (8/26/14)
1) U.S. Investors Opt for Human Over Online Financial Advice
    Gallup  |  8/15/2014

Because… The Gallup study discovered that only 20% of survey participants use an online financial planning or investing website, compared with 44% using a dedicated personal financial advisor and 35% using a financial advisory firm. The delivery of online advice can help individual investors become more financially sophisticated and more capable of taking control of their own finances. While they have a positive impact on the way investors organize their financial life, they are yet to pose a serious threat to the financial advisor community.

2) iShares to Liquidate 14 ETFs
    SEC Filings  |  8/18/2014

Because… The closure by the largest ETF manager includes 10 target date funds (TDFs), which suggests the difficulty of ETFs to gain traction in the TDF space. Deutsche will become the only ETF TDF provider after the liquidation of iShares funds. But with a higher expense ratio, a lower level of brand recognition, and lower average trading volumes, it will still be hard for Deutsche offerings to capitalize on the iShares’ absence in the near future.

3) Looking Beyond Past Performance in Manager Selection
    Plansponsor  |  8/25/2014

Because… Despite the warning that past performance does not guarantee future results, investors still pay much attention to historical returns when making investment decisions. Like studies published before, Segal Rogerscasey once again found evidence of long-term performance inconsistence within nearly all investment classes, which leads to the conclusion that even five-year performance can be a poor indicator of future success. Asset managers should place more emphasis on investment philosophy, process, strategies, risk management infrastructure, and principles of corporate governance to better assist investors with decision-making.

Total estimated outflows from long-term mutual funds were $9.41 billion for the week ending Wednesday, August 6, according to the Investment Company Institute (ICI). Bond funds suffered its first withdrawals since early February with nearly $8.2 billion in net outflows, marking the largest redemptions from bond funds in nearly a year. Investors pulled $8.6 billion from Taxable Bond while adding $454 million into Municipal Bond. Equity funds also fell into the red with $422 million in net outflows. The $3.1 billion in redemptions from Domestic Equity could not offset the $2.6 billion investors poured into World Equity. Hybrid funds experienced its first outflows since early May with $799 million, its largest redemptions since December 2013.

Source: Investment Company Institute

Don't Miss This (8/12/14)
1) Large Plans Bested Small Ones in Q2
    Plansponsor  |  8/11/2014

Because… Large plans typically have lower expense ratios, which can lead to higher returns. Also, large plans tend to have a more diversified investment menu, including a larger allocation to alternative investments, which can result in better portfolio diversification. The underperformance of smaller plans indicates these plans may need more help with fee evaluation, selection of investment options, and simplification of operational procedures.

2) BlackRock Launches Multi-Manager Alternative Strategies Fund
    BlackRock  |  8/12/2014

Because… According to FUSE’s estimate, multi-strategy alternative mutual funds had assets of $33 billion, up 41% from their 2013 assets of $23.5 billion. While we expect more fund firms to offer alternative strategy funds in a multi-manager structure, we believe the selection of sub-advisors and investor education are critical to a fund’s success. Fund firms need to share why they choose certain sub-advisors, what their investment processes are, what advantages they have over their peers, and how they minimize risks associated with their respective strategies.

3) TIAA-CREF Survey Finds One-Third of Americans Have Never Increased Their Retirement Plan Contribution Rate
    TIAA-CREF  |  8/12/2014

Because… The finding that many Americans have not increased their contribution to retirement plans is not unexpected. The need to pay other expenses, the inertia often associated with retirement savings, and the indifference to the power of compounding can be factors that prevent investors from adding to their savings accounts. Financial firms need to illustrate the benefits of maximizing contributions, the difference a small increase can make in the long term, and help plan sponsors modify the auto-escalation feature to encourage more participants to boost their contributions.

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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