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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.
1) Confidence and Reality Often at Odds When Planning for Retirement
LIMRA | 11/17/2015
Because… Uncertainties about life expectancy, future living expenses and medical costs, Social Security benefits, and evolving market conditions can all undermine an individual’s confidence in his/her retirement security. Many people do not have a formal savings plan because they either have not realized the importance of planning or do not feel motivated to save. Therefore, for financial firms, offering product solutions is not enough. It is more important to encourage and inspire people so they can change their attitude and develop a positive mindset to take actions.
2) BlackRock Targets ETF Investors with Flexible Currency Hedging
Bloomberg | 11/19/2015
Because… The planned ETF launch is noteworthy because of the funds’ flexibility in terms of currency hedging. Investors with international market exposure all face the question of “to hedge or not to hedge.” Most of them do not possess sufficient investment acumen to make a sound decision. Besides, unpredictable currency swings make it difficult even for professionals to forecast the direction of the currency movement. While we do not know now how effectively the dynamic approach of the new funds will be in managing currency risks, the attempt to take some pressure away from investors is still commendable.
3) Survey Reveals Misconceptions about Investment Performance and Risk
TIAA-CREF | 11/23/2015
Because… The misconceptions revealed by the latest TIAA-CREF survey calls for more education on the part of asset managers. Educational efforts should be geared toward both the investing public and financial journalists. While we credit reporters for democratizing investment knowledge for most of the time, their coverage of short-term performance and asset flows from time to time is partly to blame for investor myopia. With the year-end approaching, articles focusing on the race of short-term returns and flows will be ubiquitous. Investment firms need to take every possible opportunity to steer the press into taking a long-term perspective so as not to mislead indiscriminate investors.
Total estimated outflows from
long-term mutual funds were $2.42 billion for the week ended Wednesday, November
11, according to the Investment Company Institute (ICI). Domestic Equity led redemptions
with $2.4 billion in net outflows, but this was a significant improvement from
the $12.1 billion suffered during the prior week. World Equity rebounded from
negative territory with $1.1 billion in net inflows. After leading sales with
$2.1 billion last week, Taxable Bond fell into the red with $1.0 billion in
redemptions while Municipal Bond collected $314 million. For the fourth
consecutive week, Hybrid fund suffered outflows, with $477 million in weekly
Source: Investment Company Institute
1) Schwab Reduces Minimums on Mutual Fund OneSource and Improves Access to Investing
Schwab | 11/16/2015
Because… While reduced minimums can benefit investors, Schwab’s move could put some fund firms participating in the program into a dilemma. If they maintain their initial investment requirement of more than $100, they may risk losing investors to the competition. If they also lower the threshold to the $100 investment minimum, servicing small accounts may not make economic sense. Fund firms need to conduct a thorough analysis of the pros and cons, including an evaluation of the business generated from the platform and all fees paid to Schwab, investor demographics and activities, and the potential for small accounts to grow over time.
2) Mutual Fund Adviser Advertised False Performance Claims
SEC | 11/16/2015
Because… The $16.5 million settlement is a blow to Virtus, which also sends a clear message to other fund sponsors that outsource portfolio management to a third-party. Creating an elaborate oversight structure is indispensable for investment advisors in a sub-advisory relationship, as a variety of compliance matters may result in regulatory discipline. In addition to monitoring their sub-advisor’s performance calculation and reporting, fund sponsors also need to ensure the sub-advisor does not deviate from the stated investment mandate, discloses all changes made to their security selection model and risk control system, and addresses any compliance issues in a timely manner.
3) Heads in the Sand, Gen Xers Failing to Secure their Financial Future
Allianz Life | 11/16/2015
Because… Despite being in their peak earning years, Gen Xers have more financial obligations than other generations. They are better educated than their parents’ generation, but they are often characterized by a high level of skepticism. The responsibility of raising children and taking care of older family members at the same time, the lack of job security, and the memory of the market collapses have given them excuses to put off retirement saving. Financial firms that target this generation should bear its unique traits in mind, develop educational programs that provide unbiased guidance and practical advice, and encourage them to use advisory services to achieve long-term goals.
Total estimated outflows from
long-term mutual funds were $10.69 billion for the week ended Wednesday, November
4, according to the Investment Company Institute (ICI). Investors pulled $12.5
billion from stock funds, marking the largest redemptions since August 2011.
Domestic Equity was responsible for the lion’s share with $12.1 billion in net
outflows while World Equity suffered $461 million in redemptions. Bond funds,
on the other hand, remained in positive territory with Taxable Bond and
Municipal Bond gathering $2.1 billion and $496 million, respectively. For the third
consecutive week, Hybrid funds remained in the red with $776 million in net
Source: Investment Company Institute
1) New York Life Hires Brian Jacobs to Head U.S. Retail Distribution for MainStay Investments
New York Life | 10/28/2015
Because… The former president of Direxion will have his work cut out for him. MainStay has been bleeding assets every quarter since 3Q14. After raising $14.9 billion in 2013, the firm was hit by net outflows of $6.6 billion in 2014 and $7.8 billion throughout this year. Marketfield Fund, which collected $13.4 billion in 2013, parted with $7.8 billion in 2014 and $5.2 billion this year. With sales of all asset categories except Municipal Bond landing in negative territory in 3Q15, the picture is not looking rosy for the firm. Although the newly acquired IndexIQ could help MainStay ease into the ETF space, stemming redemptions from its mutual funds should still be a priority.
2) A Money-Managing Robot Is About to Join BofA's Thundering Herd
Bloomberg | 11/6/2015
Because… As the proverb goes, “If you can't beat them, join them.” Just like the everlasting debate over passive vs. active investing, there does not have to be one winner, as two can co-exist peacefully inside an investor’s portfolio. For traditional advisory firms, it is not wise to ignore the growth of robo-advisors or worry about their threat. Developing their own digital technology platform and providing integrated solutions across market segments that fill evolving investor needs will be a winning strategy to prosper in this increasingly competitive industry. The recent acquisition of The Mutual Fund Store by Financial Engines, on the other hand, is also a testimony to the mutual dependence between robo-advisors and human advisors.
3) BlackRock Announces Changes to iShares Core for Buy-and-Hold Investors
BlackRock | 11/10/2015
Because… With the latest fee cuts of its already low-cost Core Series, the largest ETF sponsor has ratcheted up the price war again. BlackRock is the best-selling ETF sponsor this year through September with a net $53.155 billion, followed closely by Vanguard with net inflows of $53.144 billion. Last year, iShares ETFs raked in $81.1 billion, while Vanguard garnered $75.8 billion. Although BlackRock seems to have edged out Vanguard, BlackRock had 306 ETFs with $753.2 billion of assets, compared with 68 Vanguard ETFs with assets of $445.7 billion. The comparisons of both time periods show that, on average, flows into a Vanguard ETF more than quadrupled the sales of an iShares ETF.
Total estimated inflows to long-term
mutual funds were $4.57 billion for the week ended Wednesday, October 21,
according to the Investment Company Institute (ICI). Bond funds continued in
positive territory with Taxable Bond attracting $2.7 billion and Municipal Bond
gathering $405 million. World Equity reversed outflows from the prior week with
nearly $1.6 billion in net inflows. Domestic Equity, however, remained in the
red with $70 million in net outflows, but this was a significant tapering from
the $1.4 billion shed during the previous week. Hybrid funds slipped back into
redemption mode with $60 million in net outflows.
Source: Investment Company Institute
Total estimated inflow to long-term
mutual funds were $1.00 billion for the week ended Wednesday, October 14,
according to the Investment Company Institute (ICI). For the first time since
July 22, bond funds attracted sales given that the Federal Reserve is not expected
to increase rates until 2016. Taxable Bond collected $1.8 billion, and Municipal
Bond attracted $617 million. Equity funds, on the other hand, fell back into
the red with Domestic Equity shedding $1.4 billion and World Equity posting $28
million in net outflows. Hybrid funds managed to reverse its outflows since
July 22 with $34 million in net inflows.
Source: Investment Company Institute
1) Bond ETFs Cross $500 Bln Mark for the First Time –BlackRock
Reuters | 10/16/2015
Because… A comparison of sales data between U.S.-listed bond mutual funds and bond ETFs can reveal how impressive the growth of bond ETFs is. During the 12-month period ending September, bond mutual funds (including both taxable and municipal funds) experienced net redemptions of $5.5 billion, whereas bond ETFs raked in $71.1 billion. Bond ETFs garnered $45.9 billion this year through September, compared with net flows of $2.3 billion into bond mutual funds. The gap is even more dramatic if we take assets into consideration as bond mutual funds held $3.2 trillion of assets as of end September, much larger than the $343.5 billion of assets in bond ETFs.
2) TDFs Start to Go Global
Planadviser | 10/20/2015
Because… While the shift to a larger international stock and bond exposure is a logical step to take advantage of pricing inefficiency in foreign markets and enhance portfolio diversification, TDF providers should take the initiative to advise the potential impact on their funds. Investors would want to know if the change of the weighting would take on additional costs and risks, how TDF managers guard against risks without significantly raising expense ratios, and whether they could be overweight international markets if they have other international investments outside of the target-date solutions. Fund firms should address these concerns to maintain the comfort level of plan sponsors and participants.
3) Hedge Fund Assets Decline by Biggest Amount Since Financial Crisis
The New York Times | 10/20/2015
Because… The disappointing performance is one of the reasons for the largest outflows since the 2008 financial crisis. According to Preqin’s latest Hedge Fund Manager Outlook survey, 22% of 150 hedge fund managers admitted poor performance is the biggest challenge now. With sophisticated investment techniques, significantly higher minimum investments, and provisions such as lock-ups and gates to slow down investor withdrawals, hedge funds are expected to fare much better than traditional mutual funds in general. Their high expense ratios add another layer of dissatisfaction to shareholders. Hedge funds’ vulnerability could lead some investors to search liquid alternative mutual funds instead.
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