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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 (4/15/14)
1) Manning & Napier, Inc. Announces Acquisition of 2100 Xenon
 Manning & Napier |  4/10/2014

Because… Compared with the overwhelming press coverage of TIAA-CREF’s buy of Nuveen (see below), Manning & Napier’s deal may not have captured much attention. But it suggests again that acquisition will continue to be a main avenue for traditional asset managers to enhance their alternative investment capabilities. As traditional firms evolve to meet the increasing demand for alternatives and diversify their businesses simultaneously, acquiring an alternative specialist can provide easier access to investment talent and their strategies with a track record. Meanwhile, it allows alternative boutiques to focus on their investment expertise without worrying about distribution challenges.

2) Guide to Understanding In-Plan Guaranteed Income Solutions
    Planadviser  |  4/11/2014

Because… Providing in-plan guaranteed income solutions is an effective way to help employees prepare for their retirement and bolster their confidence in retirement security. However, when it comes to the post-retirement income distribution, even some plan sponsors lack adequate knowledge in the selection of right products and product providers to maximize the benefits to plan participants. Financial services firms should allocate more resources to educate plan sponsors on available options in the marketplace and pros and cons of guaranteed income solutions.

3) TIAA-CREF to Purchase Nuveen Investments
TIAA-CREF  |  4/14/2014

Because… While it was no secret that Madison Dearborn wanted to offload Nuveen, more industry observers would have envisioned an IPO for Nuveen rather than an acquisition by TIAA-CREF. The price tag of the deal, total assets of the combined company, the ascendance of TIAA-CREF in the ranks of mutual fund families, and differences in each firm’s fund pricing structure, investment specialties, client base, and distribution focuses all make the transaction worth following for years to come. “This isn’t a consolidation or a synergy play. We look at it as a very smart investment,” as Roger Ferguson, TIAA’s CEO, concluded.

Don't Miss This (4/8/14)
1) SSgA Files for SPDR SSgA Risk Parity ETF
    SEC Filings  |  4/2/2014
Because… The risk parity strategy has gained popularity among institutional investors, such as large pension plans. Although it has not been widely adopted in the retail market, we are seeing asset management firms pay more attention to the concept. While the strategy can benefit from spreading portfolio risk equally across asset classes and levering up lower-risk assets, it has drawbacks too, such as lower expected returns due to increased exposure to lower-volatility asset classes, the possibility of excessive use of leverage, and subjective risk parity allocation resulting in the difficulty of performing peer group analysis.

2) Great-West Financial Acquisition of J.P. Morgan Retirement Plan Services to Create One of the Largest Retirement Recordkeeping Firms in the U.S. Marketplace
    Great-West  |  4/3/2014

Because… While we are still digesting the news that retirement divisions of Great-West and Putnam will be combined, the announcement of the deal between Great-West and J.P. Morgan is sending shock waves across the industry. The acquisition will turn Great-West into the second largest retirement services provider. Falling revenues and low margins in the large-market recordkeeping business have compelled firms to seek scale. We believe the consolidation of recordkeepers, the investment in newer technology for cost reduction, and the focus on more profitable opportunities are bringing about a paradigm shift in this industry.

3) MainStay Investments and Cushing Asset Management LP to Partner on Master Limited Partnership and Energy-Related Mutual Funds
    Business Wire  |  4/7/2014

Because… MainStay’s adoption of Cushing funds indicates its ambition to become a more important player in the alternative investments space. Its own success of acquiring the Marketfield Fund has set a powerful precedent. The fund raked in $13.4 billion in 2013, accounting for two-thirds of flows into Long/Short Equity mutual funds. MainStay’s partnership with a specialist in the fast-growing MLP sector also bears a striking resemblance to OppenheimerFunds’ acquisition of SteelPath funds. Backed by Oppenheimer’s marketing and distribution prowess, four SteelPath MLP funds gathered $5.5 billion in 2013, a substantial increase from their combined sales of $618 million in 2012.

  • Hiring Practices – Long-term assets are up nearly $2 trillion in 2013 through November and net flows for mutual funds and ETFs totaled nearly $450 billion, so we anticipate aggressive hiring in 2014. Established firms are likely to add moderately to field sales, while adding more aggressively to areas, such as the sales desk, national accounts, and due diligence and research support. Mid-tier and smaller firms are likely to utilize the boost in assets and revenues to add to field forces in order to deepen their penetration in the advisor markets.
  • Segmentation – Big data has been an industry buzzword for several years and may be slightly overhyped; however, we believe segmentation practices will continue to evolve in 2014. Firms will become increasingly involved in advisor targeting—aiding wholesalers to become more efficient with their business development efforts. Sales management can become more scientific in resource allocation and segmentation, which will lead to the next trend.
  • Internal Sales – Firms will continue to shift the focus of its internal sales group to active selling as opposed to a support function, which is a trend we have observed occurring for the past decade. Sales management is far better equipped to segment territories because of improved data mining capabilities, and firms are able to direct field and internal resources more efficiently to the proper advisor based on a multitude of metrics (book size, contact preference, practice type, etc.).

Don't Miss This (4/1/14)

1) Retirement Assets Total $23.0 Trillion in Fourth Quarter 2013
    ICI  |  3/26/2014

Because… ICI reported that total U.S. retirement assets of $23 trillion at the end of 2013 increased 15.6% from the prior year. A closer look at the long-term trends may help firms formulate business strategies. While assets in DC plans grew slightly faster than those in IRAs in 2013 and over the past five years, IRA assets rose at a 7.1% compound annual growth rate (CAGR) during the 10-year period from 2004 to 2013, beating the 5.9% CAGR of DC plans.

2) SEI Launches New Tax-Managed ETF Strategies to Help Advisors Meet Growing Investor Demand
    SEI  |  3/31/2014

Because… The launch of tax-managed strategies comes at an opportune time as investors filing their tax returns are more conscious of the tax burden and eager to look for tax-saving opportunities. For firms that already offer tax-efficient funds, tax season is a good time to put a marketing emphasis on this investment theme and elevate investor awareness of their benefits. Firms can shed light on the changes to portfolio returns if tax increases kick in, consequences of overlooking tax implications, strategies their portfolio managers employ to reduce tax liability, and approaches investors could explore to prevent take-home income from shrinking.

3) Fidelity Investments Marks National Financial Literacy Month with New Partnership, Employee Volunteer Programs Across the United States, and Innovative Tools
    Fidelity  |  4/1/2014

Because… An SEC literacy study published in 2012 concluded that “Investors have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.” Investor education should always be a priority at investment firms. Investors’ procrastination and bad investing behaviors are caused by the lack of investment knowledge. The more educated they become, the more likely they will look for investment products to satisfy their individual needs.

Share Classes

1. 2014 will be the fifth consecutive year of net outflows for A-Shares, with their market share at year end around 17.5%—this will represent a decline of 1% annually over the last six years.

2. Institutional classes will continue to dominate the pricing landscape, holding about one-third of fund assets by year-end 2014.

3. Retirement designated classes, while still relatively small, will continue to see strong growth. All of the real growth in this space is coming from institutionally priced no-12b-1-fee versions both with and without administrative or sub-TA fees.

4. By the end of 2014, we expect the number of firms offering a zero-revenue sharing share class to increase by more than one-third and be close to 50 firms.

5. Level load classes, while having maintained market share over the last five years, will see a slight decline in 2014, confirming a slow but inevitable march to obsolescence.

Don't Miss This (3/25/14)
1) Nine in 10 Registered Investment Advisors Simply “Accommodating” Retirement Plan Business
    Fidelity  |  3/20/2014

Because… Plan sponsors are increasingly relying on advisors to design their investment menu, keep abreast of regulatory changes, and provide participant education, so advisors who have the experience and skills to offer practical guidance can significantly grow their business. For financial firms, supporting these advisors and helping them distinguish from their peers should become a priority. We have seen firms develop benchmarking tools, fiduciary solutions, best practice resources, and thought leadership pieces for advisors. By assisting advisors in their pursuit of retirement plan business, financial firms can eventually win their trust and expand their own market share.

2) FINRA Fines LPL Financial LLC $950,000 for Supervisory Failures Related to Sales of Alternative Investments
    FINRA  |  3/24/2014

Because… FINRA’s fine is sending a message to all advisory firms that offer alternative investments: they must enhance the oversight of alternative product sales. Alternatives are not suitable to most investors due to their illiquidity, complexity, and lack of transparency, so firms should have policies and guidelines in place to emphasize suitability requirements. Keeping the compliance system updated and the compliance process streamlined can also help firms stay compliant, identify potential violations, and avoid costly penalties. In addition, firms need to provide comprehensive, in-depth training to both advisors and supervisory staff to ensure they have an intimate knowledge of alternatives’ features, rewards, and risks.

3) AllianceBernstein to Launch First-of-its-Kind Age-Based Index Portfolio for College Savers Based on Morningstar's 529 College Savings Indexes
    AllianceBernstein |  3/25/2014

Because… According to the College Savings Plan Network, college savings in 529 plans reached a record $227.1 billion in 2013, representing an increase of 19% from the end of 2012. The average account size grew as well to an all-time high of $19,584 at the end of 2013, up 14% from a year ago. The more investors contribute to their plan, the more likely they will notice the impact of fees and performance on the account balance. While the brands of Morningstar and Ibbotson resonate well with advisors, the indexes were only introduced last October. Advisors may wait on the sidelines before taking the plunge.

Don't Miss This (3/18/14)
1) Federated Investors Fixed-Income Mutual Funds to Acquire $421 Million in Fixed-Income Assets from Huntington Funds
    Federated  |  3/14/2014

Because… Federated had net outflows of $4 billion in 2013, down significantly from net inflows of $1.1 billion in 2012. As a publicly traded company with about 80% of assets in money market funds, the firm is under shareholder pressure to strengthen its long-term fund lineup and lessen its reliance on money market products. While the fund adoption may increase Federated’s fixed-income assets and help the funds achieve economies of scale, whether the deal will appeal to investors remains to be seen because all five Huntington fixed-income funds experienced net redemptions last year, had lagging performance, and sported low Morningstar ratings.

2) Loomis Sayles Liquidates the Mid Cap Growth Fund
    SEC Filings  |  3/14/2014

Because… Just as Loomis Sayles shut down its 2-star Mid Cap Growth Fund with three consecutive years of net outflows, Neuberger Berman announced its Mid Cap Growth Fund exceeded $1 billion in assets. Though portfolio managers play an important role in divergent paths of the same strategy, it is hard to believe one management team is absolutely better than the other. A fund’s long-term track record, the firm’s marketing and distribution strategies, different levels of tolerance for underperformance and asset decline, or the need for eliminating funds with overlapping objectives can also be factors that drive product rationalization decisions.

3) DC Plans Ended 2013 Strong
    Plansponsor  |  3/14/2014

Because… The outperformance of DC plans over DB plans should boost DC plan sponsors’ confidence to encourage more people to participate in their plans. Meanwhile, asset managers that offer DC products deserve a pat on the back because some of them have streamlined fund offerings on the investment menu, set up different product structures for DC plans, lowered expense ratios of investment options, and developed education programs to help individuals make better investment decisions.

Product Development – Firms launched nearly 687 mutual funds/ETFs in 2013, which was almost exactly in line with 2012 (671 new products). About three-quarters of the products launched were mutual funds, which is consistent with 2012 and 2011. Alternatives continue to be an area of interest. During 2013, firms launched 90 alternative products (75 mutual funds, 15 ETFs), which was up from 81 in 2012. The peak years for product development in the alternative space continues to be 2010 and 2011 when firms launched more than 100 products during both years. For 2014 we anticipate robust product development again, with new funds and ETFs reaching 600 products. International Equity and Domestic Equity will be the top categories for product development, as firms look to take advantage of the recent momentum and economic sentiment. We also anticipate continued interest in alternative products, as the success of John Hancock, MainStay, and Wells Fargo drives additional firms into the space.

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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