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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 (7/22/14)
1) The Largest Leakage Culprit: Job Change Cashouts
EBRI  |  7/17/2014

Because… EBRI estimated that the effect from 401(k) cashouts at job change turns out to be approximately two-thirds of the total leakage impact. Financial firms should first help employers motivate their workers to save for the long term. Service providers should also simplify the rollover process for job changers by using web-based rather than paper forms. A more convenient and easy-to-follow electronic process could curb the urge to take money out, especially for younger employees who are more likely to take advantage of the latest technology.

2) DC Plan Sponsors Called On to Offer In-Plan Annuities
Plansponsor  |  7/17/2014

Because… Higher costs, product complexity, unscrupulous sales tactics, and suitability lawsuits that often accompany annuities have scared away many DC plan sponsors. In addition, plan sponsors and participants may lack confidence in insurers whose financial strength and ability to meet ongoing obligations to policyholders determine payments of guaranteed benefits. So the call for in-plan annuities may meet with objection despite the good intention of offering lifetime income solutions to hedge against longevity risk.

3) Natixis Global Asset Management Funds $1 Million Investor Behavior Project at MIT
Business Wire  |  7/21/2014

Because… Experts in the behavior finance field have published a lot of studies that attempt to reveal the influence of human emotions and cognitive errors on investor decision-making. A small number of asset managers, such as LSV Asset Management, Dreman Value, and Fuller & Thaler, have embedded behavioral finance into their investment strategies. But the fund industry, for the most part, has not paid sufficient attention to tenets of behavioral finance. The efforts, such as the collaboration between Natixis and MIT, are likely to elevate awareness of the importance of behavioral finance.

Don't Miss This (7/15/14)
1) Annual Survey Finds Continued Rise of Mutual Funds as Vehicle of Choice for Alternative Strategies; Long-Short Equity Garners Most Investor Interest for Fourth Year in a Row
    Morningstar  |  7/7/2014

Because… The record-high asset flows into alternative funds and the largest number of fund launches in 2013 are a clear indication that liquid alternative mutual funds are becoming a viable option for investors who are turning to alternative investments for diversification and risk management. We believe investors will continue to take advantage of the availability of alternative mutual funds because they are SEC-registered, provide liquidity and transparency, and charge lower fees than comparable hedge funds.

2) Utility & REIT Funds Come Roaring Back  |  7/11/2014

Because… Utilities became the second best-selling category among all ETFs in June, according to Morningstar. Utilities ETFs pulled in $2.4 billion in the month and $3.3 billion in the first half of the year, compared with net redemptions of $1.5 billion in 2013. SSgA’s Utilities Select Sector SPDR ETF alone raised $1.4 billion in June and $1.9 billion this year through June, accounting for 58% of the category flows for both time periods. The fund’s YTD return of 18.5%, more than doubling the 7% return from the S&P 500, could be a factor appealing to performance-chasing investors.

3) Industry Responses Vary on TDF Disclosure Proposals
    Plansponsor |  7/11/2014

Because… We think enhanced disclosures are necessary and helpful to improve investor understanding of target-date funds (TDFs), but challenges still exist beyond including more information in marketing materials. TDF providers need first to engage participants as many individuals do not pay sufficient attention to required disclosures at all. Since a lot of investors lack the knowledge to get a handle on such concepts as “glide path” and “risk profile,” TDF managers should also consider whether average investors can fully digest the information provided to them and how to improve their ability to make sound decisions based on fund profiles and their risk tolerance.

Don't Miss This (7/8/14)
1) Perceived Expense Stops Many from Seeking Advice
    Plansponsor  |  7/2/2014

Because… The survey pointed out 23% of respondents feel financial professionals are too expensive to hire. To dispel investor misconceptions, plan sponsors should let their employees know the actual cost of advice, benefits of obtaining professional guidance, and their due diligence process to identify affordable advice providers. While easy accessibility and proliferation of online information may impel some investors to take advantage of “free” advice, they have not realized that only advice that is tailored to individual needs can help optimize their investment outcomes.

2) IndexIQ Files for IQ Private Equity Tracker ETF
    SEC Filings  |  7/3/2014

Because… Although asset managers are increasingly rolling out alternative investment products, funds with a private equity focus are still very rare in the marketplace. The new IndexIQ offering, which is not a fund of private equity funds, seeks to “track the returns of private equity fund managers” and “replicate the beta return characteristics of private equity funds”. Pension plans, charities, foundations, and endowments have already been investing in private equities with success. We expect more investment firms to explore opportunities in this trillion dollar industry.

3) Myron Scholes and Ashwin Alankar Join Janus Capital
    Janus  |  7/8/2014

Because… The hiring of Myron Scholes as Chief Investment Strategist and Ashwin Alankar as the head of Asset Allocation and Risk Management suggests Janus is placing an emphasis on asset allocation solutions. Bringing a Nobel Laureate on board could help Janus draw more investor attention, produce insightful thought leadership content, and enhance brand equity. Leveraging their expertise will likely boost investor confidence on the firm’s new customized products.

Don't Miss This (7/1/14)
1) SEI White Paper: Advisors Must View Succession Planning As Growth Strategy, Not Just Retirement Strategy
    SEI  |  6/24/2014

Because… Despite the aging of the advisor community, many advisors have not taken the time to think about succession planning. They may be reluctant to address the issue due to emotional attachment to their business, but the presence of a succession plan can give clients a sense of stability and help retain clients. Financial firms can work with advisors to develop a well-crafted succession plan by stressing the importance of creating a succession plan, presenting succession planning options, helping advisors conduct a comprehensive business assessment and identify the succession model that best protects the advisor interests, and providing referral services.

2) BlackRock Adjusts Target-Date Fund
    Financial Advisor  |  6/25/2014

Because… BlackRock has followed Fidelity and Russell to adjust the asset allocation for its target date funds (TDFs). Increasing exposure to equities has appeared to be a common theme for the reallocation. TDFs with aggressive glide paths performed well in 2013. TDF managers that have remained conservative and kept bond exposure at a relatively high level will have a hard time to help investors attain their retirement goals because of the lagging fund performance. On the other hand, plan sponsors expect TDF managers to refine portfolio construction to respond to the changing market environment. If TDF provider lacks the capability to adapt to the evolving markets, plan sponsors have the flexibility to switch to another that can better prepare for interest rates’ eventual hikes.

3) Alger Announces Opening of London Office and Hiring of Head of International Sales
    PR Newswire  |  6/26/2014

Because… Just as Alger opened its London office, the London-based Henderson announced its acquisition of Geneva Capital Management, a U.S.-based mid- and small-cap growth equity specialist. Reaching across the pond has become a strategic priority for asset managers to accelerate their business growth. However, geographic expansion, which often comes with both rewards and risks, requires long-term commitment and patience, as brand recognition, local investor demand, regulatory hurdles, and different distribution models can pose serious challenges for firms expanding overseas.

Total estimated inflows to long-term mutual funds were $4.31 billion for the week ending Wednesday, June 18, according to the Investment Company Institute (ICI). This cumulative intake represents a 25.3% increase from the prior week. Domestic Equity remained in negative territory with $2.2 billion in redemptions while all other broad assets classes experienced inflows. After two weeks of record $3.0 billion-plus inflows, World Equity captured nearly $1.3 billion in net inflows. Taxable Bond led sales during the week with $3.7 billion, and Municipal Bond managed to gather $419 million. Hybrid funds collected nearly $1.1 billion.

Source: Investment Company Institute

Don't Miss This (6/24/14)
1) BlackRock Shifts Pay Formula for U.S. Sales Force
    Reuters  |  6/20/2014

Because… BlackRock’s bold move is bringing the business goal and sales compensation into closer alignment. Fund firms would want to pursue more predictable and reliable revenue stream, but non-sticky assets make it difficult for them to recover the cost of acquiring assets and achieve long-term profitability. By switching to a “net”-based pay formula, BlackRock is focusing more on asset retention than most firms in the industry with a conventional “gross”-based compensation structure.

2) The Impact of “Leakage” on 401(k) Accumulations
    EBRI  |  6/23/2014

Because… The leakage from defined contribution plans is concerning because it may reduce retirement assets, lead to lower contribution, and result in the erosion of retirement readiness. From a plan sponsor’s view, the plan’s asset allocation and investment performance can also be affected when plan participants take money out. The EBRI analysis, by quantifying the impact of leakage on 401(k) accumulations, underscores the need for financial firms to help plan sponsors minimize leakage.

3) Fidelity's Sector ETFs Pass the $1 Billion Mark
    Bloomberg  |  6/23/2014

Because… While the fund giant’s ability to garner assets is not surprising, pulling $1 billion into its new ETFs in eight months is still impressive. With the lowest expense ratios, the commission-free trading, a powerful distribution network, a well-known brand, the partnership with BlackRock, sector-specific educational effort, and an easy access to guidance tools, Fidelity is on its way of becoming a formidable competitor in the sector ETF space.

Don't Miss This (6/17/14)
1) Eight in Ten Millennials Say Great Recession Taught Them to Save “Now,” Wells Fargo Survey Finds
Wells Fargo  |  6/10/2014

Because… While millennials’ increased confidence in the stock market and their own financial future is comforting, the survey result that revealed 45% of the generation are not saving for retirement indicates financial services firms need to work harder to engage these younger investors. Firms should urge them to participate in employer-sponsored retirement plans, adopt a consultative approach, deliver personalized practical solutions for individual situations, and dispel any myths and misunderstandings they may have.

2) Guggenheim to Launch the Multi-Asset Fund
SEC Filings  |  6/13/2014

Because… World Allocation, where global multi-asset funds belong, was the fourth best-selling mutual fund category this year through the end of May with net inflows of $11.5 billion. Investors’ demand for investment flexibility has spurred the growing interest in global multi-asset funds. Investors pursue go-anywhere approaches that can exploit investment opportunities around the world without being confined to market capitalization ranges, investment styles, or specific asset classes. The combination of multiple asset classes in a single fund holds the potential of return maximization and portfolio diversification.

3) Plan Sponsors Moving to Retirement Income Mindset
Plansponsor  |  6/17/2014

Because… This study’s finding of plan sponsors moving to retirement income mindset is a remarkable change from the past. Research in previous years showed that many plan sponsors focused more on asset accumulation than retirement income. Most of them did not take the responsibility of helping employees generate and maintain a stream of income after their retirement because of the concerns about fiduciary liability in selecting specific retirement income solutions and assessing product providers’ ability to offer steady income payments. Plan sponsors’ willingness to help with retirement income planning will certainly improve the appeal of their plan.

Total estimated inflows to long-term mutual funds were $4.40 billion for the week ending Wednesday, June 4, according to the Investment Company Institute (ICI). This intake is up significantly from the $696 million accrued during the prior week and is aligned with cumulative weekly sales totals throughout May. World Equity led sales with $3.2 billion, marking its largest intake since March. One the other hand, for the sixth consecutive week Domestic Equity remained in the red with $1.1 billion in net outflows. With $785 million in net inflows, sales into Municipal Bond fund surpassed the $371 million in net inflows into Taxable Bond. Finally, Hybrid funds gathered $1.1 billion, on par with its totals during the past few weeks.

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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