ICI’s New ETF Committee Under the Microscope

The exchange traded fund (ETF) industry is finally getting more attention from the Investment Company Institute (ICI) – something it has been wanting for some time. But it has some in the industry wondering if there aren’t some ulterior motives.

ETF sponsors have often complained that the ICI doesn’t do enough on their behalf, reports Brooke Southall at Investment News, and they’ve wondered if a separate association isn’t in order. Southall’s excellent article reveals that the ICI’s move is seen by many as an effort to head off any possibility a new association developing. The committee is a possible precursor to a separate ETF unit in the organization, according to Jim Ross, managing director of State Street Global Advisors.

The concern on ETF providers’ minds is whether the ICI, as an organization vested primarily in the interest of mutual funds, will actually do enough to meet their needs.

Carl Verboncoeur, Rydex’s CEO, feels strongly that the ETF industry has a need for advocacy. As an involved member of the ICI for many years, he’s looking forward to observing the committee’s progress.

Bruce Bond, CEO of PowerShares, has been appointed chairman of this committee. I’ve known and observed Bruce for a few years now and wouldn’t say that patience is one of his outstanding characteristics. Just take a look at PowerShares’ expanding product line.

"The committee itself will determine the topics and issues facing the ETF industry that they want to pursue first," Bond said. He adds that between the size of the ETF industry and the ICI, they hope to use their strength to address the issues.

If this new committee’s proposals aren’t accepted by the ICI membership right out of the gate, I’d expect Mr. Bond will be very vocal.

I think the jury is still out as to the effectiveness of this committee. The priorities of ETF providers clearly do not align with the priorities of conventional mutual fund companies for a few important reasons:

1. There’s an ongoing need for ETF education not only for individuals, but financial advisors as well. As more investors understand and utilize ETFs, assets will come at the expense of underperforming fund companies.
2. Congress is looking closely at fees disclosure in investments and retirement plans. This bodes well for ETF providers, as expense ratios in most cases are a fraction of what they are in conventional funds.
3. ETF providers are justified in feeling strongly that ETFs should play a role in 401k investment options. Conventional mutual fund companies and plan providers are clearly not motivated to include ETFs while sacrificing the lucrative fees.