Old money management firms that missed the first exchange traded fund boat are beginning to step into the market. However, these new entrants will face hurdles as they come up against an entrenched industry.
Tom Lydon, founder and publisher of ETF Trends, joined Dave Nadig, director of ETFs for FactSet, on ETF Gurus to discuss the uphill battle that new fund providers will face
For instance, we are hearing about how John Hancock, T. Rowe Price and Goldman Sachs want to expand into the ETF space.
The ETF industry has been a greater disruptor in the fund industry. We have witnessed compensation changes in wirehouse firms, with many changing from commission and fee-based to fee-only. More are no longer taking 12b-1 fees anymore.
However, these new entrants will have to tackle distribution challenges, adjusting to the way they apply distribution to ETFs products, compared to fund products in separate accounts.
For instance, old mutual fund providers will have to adapt to how they distribute products as ETF-centric advisors will invest differently. Advisors who use ETFs are also a different breed of investors. They are tech savvy and access more information online, so providers will need to treat distribution differently.
“The phrase that you hear a lot of the times is ‘ETFs are bought not sold,'” Nadig said on the podcast. “You have to create investment demand some where because you can’t really compensate a wholesaler for getting XYZ advisor to buy X amount of product.”
Nevertheless, these new entrants may gain traction by capitalizing on some of their individual disciplines. Their money managing expertise may provide ETF strategies that help hedge against negative effects of rising rates or a rising dollar in the period ahead.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.