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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 $670 million for the week ended Wednesday, May 13, according to the Investment Company Institute (ICI). With $2.34 billion in net inflows, Taxable Bond surpassed World Equity and led sales. World Equity gathered $2.25 billion, marking the first time in six weeks that sales fell below the $3 billion mark, primarily due to concerns regarding Greece’s financial woes. For the 11th straight week Domestic Equity posted in the red with nearly $5.1 billion in weekly redemptions. Investors also pulled $169 million from Municipal Bond. Hybrid funds slipped back into negative territory with $30 million in net outflows. 

Source: Investment Company Institute (ICI)

Don't Miss This (5/19/15)
1) Northern Trust Finds Employees Favor Companies Playing More Active Role in Their Retirement Plans
    Northern Trust | 5/11/2015

Because… The Northern Trust study highlighted the gap between plan participants’ preference and plan sponsors’ reservations. Employees generally welcome the paternalistic role because they trust that their employers have the fiduciary responsibility to assist them with retirement planning. With the lack of sufficient knowledge to make sound investment decisions, they also believe plan sponsors have more experience of selecting and monitoring investment options. In addition, plan design features such as auto-enrollment and auto-escalation can help them overcome inertia and cultivate good savings habits.

2) Virtus to Use Dorsey Wright's Relative Strength Capabilities for the Former AlphaSector Funds
    Virtus | 5/11/2015

Because… Virtus’ move to sever ties with F-Squared suggests challenges in a sub-advisory relationship. The charge against F-Squared for overstating historical performance has greatly undermined the trust of both investors and asset managers that hire the firm as a sub-advisor. As quantitative techniques are usually the core of an investment process for model portfolio providers, any misleading statement may break investor faith in a firm’s investment approach. Investment firms conducting due diligence need to ensure sub-advisors they work with maintain the highest ethical standards and have compliance policies and procedures in place.

3) Eaton Vance to Help Cover Broker Costs on New ETFs
    Reuters | 5/14/2015

Because… After Eaton Vance cleared a major regulatory hurdle for exchange-traded managed funds, establishing distribution infrastructure has become a priority. Several asset managers have signed a licensing agreement with Eaton Vance’s NextShares subsidiary, but if the firm cannot build alliances with leading brokerages, it would be hard for the new product to gain traction in the marketplace. The fact that Eaton Vance is willing to help brokerages pay their technology costs and share revenues indicates fund sales could encounter a fairly strong headwind initially before brokerages get a handle on the structure’s complexity and see the true demand from investors.

Total estimated inflows into long-term mutual funds were $3.44 billion for the week ended Wednesday, May 6, according to the Investment Company Institute (ICI). Stocks posted $556 million in net inflows due to the ongoing demand for World Equity, which gathered $2.8 billion. Although Domestic Equity remained it in the red, its outflows of $2.2 billion represented less than one-third of its redemptions during the prior week. Taxable Bond collected $2.4 billion but Municipal Bond slipped into negative territory with $36 million in net outflows. Hybrid funds rebounded from outflows during the prior week by garnering $492 million in net inflows.

Source: Investment Company Institute (ICI)

Don't Miss This (5/12/15)
1) ETFs Outgrew Mutual Funds in Retail Channels for the First Time in Q1, According to Broadridge
    PR Newswire | 5/4/2015

Because… The faster growth of ETFs should not come as a surprise. Low costs, daily disclosure of portfolio holdings, tax efficiency, and easier access than before have made ETFs a popular choice among investors. The increased product development focus on smart beta strategies, currency-hedged approaches, exposure to hard-to-reach markets and niche industry segments, and asset allocation-based model portfolios will continue to drive ETF asset growth. With ETF sponsors ramping up educational efforts, more retail investors will gain familiarity with ETFs’ features and usages, which will further accelerate the industry’s expansion.

2) Robo-adviser Jumps into College Savings Market
    Investment News | 5/5/2015

Because… While FutureAdvisor’s offering of free college savings plans may entice some investors, whether it can significantly expand the robo-advisor’s business remains to be seen. Since states work with different service providers and offer different incentives, individual investors face a wide range of choices. They would want to discuss with financial advisors about the available options, tax implications, and the impact on estate planning. Although the web-based platform can simplify the decision-making process, the complexity of college savings plans may deter investors’ use of the online advice.

3) ‘Climate Right’ for Expanding Use of Multiple Employer Plans
    Prudential | 5/6/2015

Because… For small employers who do not want to set up their own plans, financial services firms should advocate multiple employer plans (MEPs) as a solution to help their employees save for retirement. Financial firms should make small employers aware of the benefits of joining a MEP, including the administrative ease due to the delivery of all plan services in a package, transfer of fiduciary responsibilities and liabilities from a plan sponsor to a MEP, greater negotiating power resulting from forming a larger plan to achieve economies of scale and cost efficiency, and savings from a plan audit only performed at the MEP level.

Total estimated outflows from long-term mutual funds were $398 million for the week ended Wednesday, April 29, according to the Investment Company Institute (ICI). For the ninth consecutive week, investors pulled money out of Domestic Equity—$7.2 billion, its largest redemptions since July 2014. On the other hand, World Equity collected nearly $4.1 billion, continuing the trend of investor preference for European stocks. Taxable Bond garnered nearly $2.1 billion while Municipal Bond gathered $1.0 billion, marking its largest intake since late January. Hybrid funds fell into negative territory with $357 million in net outflows. 

Source: Investment Company Institute (ICI)

Don't Miss This (4/28/15)
1) Morningstar Study Shows Fund Expense Ratios Declined in 2014, Investors Increasingly Seek Low-Cost Funds
    Press Release | 4/23/2015

Because… While the trend towards low-cost funds is no news, the study points out that the overall industry fee revenue increased from $50 billion to $88 billion during the 10-year period as of 2014 due to increased assets under management. This indicates that cost reduction is actually a win-win for both investors and asset managers. With the competition from ETFs and strategic beta strategies, we expect expense ratios of actively managed funds to continue to decline down the road.

2) Deutsche X-trackers Announces Closure of Target-Date ETFs
    Business Wire | 4/24/2015

Because… Deutsche became the sole provider with target date ETFs on the market after similar products from iShares were dissolved last October, so the closure of these Deutsche offerings is disheartening to say the least. Although workarounds have been found to overcome operational and technical barriers that used to prevent retirement plans from adding ETFs to their investment menu, the adoption rate of ETFs in general is still low because plan sponsors have reservations about the investment vehicle they lack sufficient knowledge about and ETFs’ tax efficiency becomes largely irrelevant within a 401(k) framework.

3) Study Finds Investors Turned Off By Foreign Mutual Fund Manager Names
    Financial Advisor | 4/28/2015

Because… This academic study may have its own merit, but fund firms should not be swayed by its findings. The use of fund managers should be determined by multiple factors, including their investment knowledge, real-world experience, investment philosophy, research capabilities, and educational background. Driving away skilled investment professionals because of their foreign-sounding names would be imprudent in the talent acquisition/development process. Meanwhile, fund firms should guide investors on how to make sound investment decisions.

Total estimated outflows from long-term mutual funds were $2.92 billion for the week ended Wednesday, April 15, according to the Investment Company Institute (ICI). For the seventh consecutive week, Domestic Equity suffered $5.7 billion—its largest redemptions since early July 14. Outflows reportedly stem from the tax deadline and reallocations due to the European market outperforming the U.S. Municipal Bond also witnessed outflows of $943 million, marking the largest redemptions since the last week of 2013. On the other hand, World Equity amassed $2.9 billion in net inflows, marking its 15th week in positive territory. Taxable Bond gathered $627 million, and Hybrid funds pulled in $162 million.

Source: Investment Company Institute

Don't Miss This (4/21/15)
1) Q1 Hits Record High For ETF Assets | 4/9/2015

Because… The news that worldwide ETP assets are close to $3 trillion is exciting. BlackRock also reported that global ETP inflows in the first quarter nearly tripled the total from first quarter 2014. In particular, the projection that European product assets could rise to $1 trillion within five years from the current $494 billion may draw the attention of ETP sponsors. iShares accounted for 46% of Europe-listed ETP assets at the end of March, with the other 44 ETP managers controlling 54% of assets. While iShares may continue its dominance in the foreseeable future, the strong YTD sales shows the European market holds considerable potential for other ETP sponsors as well.

2) Social Media Influences Institutional Investment Decisions
    Planadviser | 4/16/2015

Because… The influence of social media exerts on institutional investors indicates asset managers need to make better use of social media tools. Firms should tap social media as a communication channel to increase transparency and establish themselves as a thought leader. They should also encourage investors to interact with them through social media so that they can get feedback on their products and services. In addition, the originality within legal boundaries is needed in order to drive traffic and develop a larger circle of followers.

3) Carlyle to Shutter Its Two Mutual Funds
    Reuters | 4/18/2015

Because… KKR liquidated its alternative mutual funds a year ago. Now Carlyle is following suit to shutter its own funds. The fund termination suggests these private equity leaders have substantial obstacles to overcome in the retail market. Retail funds, even when they employ the same investment strategies, are different from their institutional counterparts in many ways in terms of their fee structures, regulatory requirements, distribution infrastructure, and development of educational resources. Therefore, alternative asset managers should identify the best approach to leverage their expertise if they are trying to expand their retail footprints.

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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