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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 inflows to long-term mutual funds were $396 million for the week ended Wednesday, September 23, according to the Investment Company Institute (ICI). After two consecutive weeks in the red, stocks gathered $2.3 billion in net inflows—its largest intake in five months. The overwhelming majority of inflows came from $2.2 billion in World Equity. On the other hand, bonds posted withdrawals for the ninth straight week, with $1.8 billion in net outflows. Taxable Bond suffered $2.4 billion in redemptions while Municipal Bond gathered $628 million—its largest intake in nearly five months. Hybrid funds shed $189 million in outflows to mark their ninth straight week of outflows.

Source: Investment Company Institute

Don't Miss This (9/29/15)
1) 30 Million Recently Tapped Retirement Savings for Emergency     
    Planadviser | 9/23/2015

Because… The survey result that shows 30 million tapped retirement savings for emergency in the past year makes us wonder whether those who have withdrawn money are aware of the damage they have done to their retirement savings, such as a 10% penalty if they are younger than 59 1/2. Besides the tax penalty associated with premature withdrawals, more education may need to be provided to help people understand the power of compounding for wealth accumulation, as well as opportunity costs of leaving an institutionally-priced plan or a tax-advantaged retirement account.

2) Financial Engines Expands Access to Its Investment Advisors
    Financial Engines | 9/23/2015

Because… The expanded access to its advisors at no additional charge should be welcome news to Financial Engines’ customers. Some people who are unsure about the advisory services now have an opportunity to test the water, and they are more likely to enroll in the managed account program if they feel the advice is truly unbiased and practical. Another group of investors may have avoided talking with professionals due to the fear of high fees. With this concern becoming a non-issue, the odds of these individuals seeking professional help should be improved.

3) TD Ameritrade Weighs Charging Fund Companies on Its Commission-free ETF Platform
    Investment News | 9/25/2015

Because… TD Ameritrade offered the largest selection of commission-free ETFs five years ago, but the program has not added new funds since. Now that Schwab has quickly expanded its OneSource to include 211 ETFs and E*Trade provides access to 116 no-commission ETFs, TD Ameritrade has dropped to the third place in terms of the number of commission-free ETFs. While TD Ameritrade still has its advantages in average ETF assets, average expense ratio, and 3-month average daily trading volume over other no-trading-fee programs, the charge, depending on how competitive it will be, will prompt ETF issuers to reconsider the value and desirability of the platform.

Total estimated outflows from long-term mutual funds were $6.36 billion for the week ended Wednesday, September 16, according to the Investment Company Institute (ICI).With the exception of World Equity which gathered nearly $2.0 billion in net inflows, all broad asset classes remained in negative territory. Taxable Bond led redemptions with $3.9 billion while Municipal Bond witnesses modest outflows of $589 million. Investors pulled $3.1 billion from Domestic Equity after yanking $3.0 billion during the prior week. Finally, Hybrid funds shed $722 million during the week.

Source: Investment Company Institute

Don't Miss This (9/22/15)
1) Unique 401(k) Modeling App Ups BlackRock's Value-add for Advisers
    Investment News | 9/18/2015

Because… Defined contribution investment-only (DCIO) providers often focus on rejiggering the pricing structure of their products, revamping the sales force to better penetrate the DC market, or providing thought leadership to capture more participant attention. In fact, developing innovative analytical tools is also an effective way to differentiate a firm from its competitors. American Century introduced a tool nearly two years ago that assesses plan health. Now the BlackRock’s app can simulate different scenarios and project the potential impact of plan changes. Tools like these can help improve the plan design and ultimately boost overall participation.

2) LSE's Sale of Russell Investments to Citic May Collapse
    Bloomberg | 9/22/2015

Because… The news that the sale may fail is not completely out of the blue. There are multiple factors that can break a deal. Besides the unstable market environment and investigations into corporate executives in this case, enterprise goals, management philosophies, business principles, leadership styles, and cultural integration should all be considered. For a cross-border deal that involves a buyer with vastly different political, economic, and social backgrounds, the highest bidding price should not become the determining parameter.

3) Schwab Finds Equities Dominate SDBAs in Retirement Plans
    Planadviser | 9/22/2015

Because… The Schwab report found that equities dominate self-directed brokerage accounts in retirement plans. Similarly, the latest EBRI study revealed that IRA owners increased their equity allocations in 2013. The positive market conditions that brought about strong equity performance may have contributed to the higher exposure to stocks. On the other hand, bond yields are too low to make them appealing. The Fed has instilled more uncertainty by keeping interest rates unchanged. However, asset managers, while helping investors evaluate elevated risks resulted from the greater equity allocation, should remind investors that fixed income is still a key component in a well-diversified portfolio.

Don't Miss This (9/15/15)
1) First Trust to Add Dorsey Wright Dynamic Focus 5 ETF
    SEC Filings | 9/4/2015

Because… The filing makes us wonder if the fund can replicate the success of its sibling, First Trust Dorsey Wright Focus 5 ETF (FV). FV, since its inception on 3/5/14, amassed $4.3 billion as of 9/14/15. Using the DWA Relative Strength Ranking System, the fund generated an YTD return of 6.08% as of the end of August, compared with the S&P 500 Index’s loss of 2.88%. Its one-year return of 12.59% also handily beat the S&P 500’s 0.48%. Despite its high expense ratio of 0.94%, FV garnered $2.8 billion this year through July after raising $1.2 billion in 2014. First Trust may also benefit from Dorsey Wright’s enhanced brand recognition as a result of Nasdaq’s acquisition at the beginning of the year.

2) Top Global Pension Fund Assets Exceed $15 Trillion
    Towers Watson | 9/7/2015

Because… The research of the world’s top 300 pension funds sheds light on the areas asset managers should give their strategic priorities to. Public-sector pension funds accounted for the most (39%) of the total assets, followed by sovereign funds with 28%. In terms of geographic regions, North America continued to hold the largest assets, with the highest five-year annualized growth rate of nearly 8%. While global retirement assets will undoubtedly continue to grow steadily, asset management firms need to identify target markets and develop focused strategies for those tightly-defined market segments instead of trying to satisfy all.

3) Federated Investors’ Money Market Funds to Acquire Approximately $1.1 Billion in Assets from Huntington Money Market Funds
    Federated | 9/9/2015

Because… This is Federated’s third acquisition of money market funds this year. On the one hand, the firm is working feverishly on revamping its money market product line in order to comply with the SEC rule. On the other hand, it is actively seeking takeover possibilities from those that look for an exit. The SEC’s new requirements are putting an additional burden on smaller money market fund providers, which would rather give up the low-margin business entirely. Their departure from the space is giving larger players such as Federated a golden opportunity to build scale.

Total estimated outflows from long-term mutual funds were $5.21 billion for the week ended Wednesday, September 2, according to the Investment Company Institute (ICI). For the first time since February, Domestic Equity gathered sales with $1.8 billion in net inflows. World Equity, which has been driving sales for most of the year, only managed to gather $191 million after posting withdrawals of $1.2 billion during the prior week. Bond funds remained in negative territory with investors pulling $5.8 billion from Taxable Bond and $510 million from Municipal Bond. On the heels of suffering $4.2 billion in net outflows, Hybrid funds remained in the red with $857 million in redemptions.

Source: Investment Company Institute

Don't Miss This (9/8/15)
1) Vanguard Launches Tax-Exempt Bond Index Fund
     Vanguard | 8/25/2015

Because… The first municipal bond index fund from Vanguard could be another blockbuster in the marketplace. Its ETF version (VTEB) will compete head to head with iShares National AMT-Free Muni Bond ETF (MUB), which tracks the same index as VTEB. MUB, incepted on 9/7/2007, has clearly enjoyed the first-mover advantage with larger assets ($5.2 billion as of 9/4/2015) and higher trading volume. However, MUB charges 0.25%, more than double VTEB’s expense ratio of 0.12%. With the potential rate hikes and investors’ tendency to seek tax shelter and safety, VTEB will have a good chance of catching up with MUB.

2) Reenrollment into TDFs a Worthy Investment
    NAPA | 8/27/2015

Because… While re-enrollment can help employees who lack investment knowledge or do not change asset allocation due to inertia, plan sponsors should also consider whether shifting retirement assets from their own investment selection to a TDF is appropriate for others who are capable of making investment decisions. This group of investors may not like the paternalism that takes away their choices. They prefer to have more control of their retirement assets. Therefore, plan sponsors should ensure re-enrollment into TDFs is consistent with plan participants’ needs, their personal circumstances, and financial situations.

3) Van Eck Announces Changes to Market Vectors ETF Product Line
    Van Eck | 9/4/2015

Because… Just as other asset managers are jumping on the smart beta bandwagon, Van Eck is putting four of its own to rest. With combined assets of $16.6 million as of 9/4/15, these funds have not benefited from the smart beta rage, although they have tracked their respective indexes closely. The fund closure reminds fund firms that a rising tide does not lift all boats. Fund providers need to make a greater effort to explain how their approach is distinctive from the competition and how the selected criteria help funds capture market beta in a more efficient way.

Total estimated outflows from long-term mutual funds were $27.33 billion for the week ended Wednesday, August 26, according to the Investment Company Institute (ICI). Amid investor concerns over slowing growth in China and a potential interest rate hike, all broad asset classes suffered redemptions. Equity funds shed nearly $11.0 billion—its largest outflows since October 2012. Investors pulled $9.8 billion from Domestic Equity and $1.2 billion from World Equity, representing the first time this year World Equity fell into negative territory. Taxable Bond experienced $11.4 billion in net outflows, representing its largest outtake since October 2014. Meanwhile Municipal Bond funds shed $715 million during the week. Hybrid funds experienced its largest redemptions since November 2011 with $4.3 billion in net outflows.

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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