Will DOL Rule Shakeup ETFs? ETF Trends, BNY Mellon Release Report

The financial industry is coming to terms with the new Department of Labor fiduciary rules. With the markets adapting to the eventual changes to the way advisors handle client portfolios, exchange traded funds could ultimately end up reaping a huge windfall.

In a new report, Accelerating Growth: The Department of Labor Conflict of Interest rules and its Impact on the ETF industry, by ETF Trends and BNY Mellon, Frank La Salla, CEO of Alternative Investment Services and Structured Products at BNY Mellon, and Steve Cook, Managing Director and Business Executive of Structured Product Services at BNY Mellon, argue that the ETF industry is poised for continued success. La Salla and Cook point to a couple of factors that will continue to support the industry:

  • Strong market dynamics that led to the growth of ETFs continue to favor ETFs.
  • The ETF infrastructure has withstood tests and seems strong enough to support industry growth.
  • The DOL Rule provides more impetus for investing in ETFs.

For instance, according to a survey of advisors, BNY Mellon and ETF Trends found that 55% of respondents will invest in more ETFs as a result of the DOL rules over the next one to two years.

While La Salla and Cook believe the new DOL rules will bolster ETF acceptance, improvements in platforms, education and data analysis will be required to help support the growth. Specifically, they point to a number of points, including:

  • The biggest opportunity may be in the defined contribution area, with market and regulatory pressures pushing participants to be able to move into ETFs. DC platform limitations will need to be addressed.
  • Increased reliance on ETFs means a need for greater education about ETFs and of the DOL Rule for all members of the ETF ecosystem.
  • Growth also will lead to the need to harness trading and ownership data and transform it into customizable information that can be used for decision making. Creating tools to leverage this information is necessary for effective and efficient planning for marketing, product development and infrastructure scaling, and for supporting advisor investment decisions.

“The ETF industry can work more closely with distributors, ETF platforms and exchanges or outright buy the data to better analyze investor and consumer needs,” Tom Lydon, President of ETF Trends and Global Trends Investments, said in the report. “The ETF industry should also take this opportunity to better educate investors as a means to fuel further growth.”

As the new DOL rules trickle through the industry, Lydon believes ETF-centric advisors will have younger minds in their management teams, work in entrepreneurial environments and be more apt to adopt innovative technologies in managing their businesses.

Lydon also sees an ongoing shift where ETF strategists will replace active fund managers. They will enthusiastically embrace technology such as online research, digital communication, office technology, robo-advisor offerings and use social media for communicating as well as trend-spotting.

Financial advisors who are interested in learning more about the new Department of Labor fiduciary rules and the impact on the fund industry can register for the September 29-30 in-person third annual ETF Boot Camp here.