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BREAKING NEWS: SEC to allow derivatives in active ETFs (AETFs) as predicted by Rob Ivanoff in the ETF Business Review for nearly 5 years; the fund industry is now on a NEW course in terms of distribution, economics, investing in ETF know-how

12/6/2012

The big news are out: SEC will allow derivatives in active ETFs. This is a revolutionary development and it will serve as a catalyst behind the most amazing transformation of the fund business. (to read SEC's speech click here)

What does this mean for the fund industry?

It means that the 30+ open-minded fund companies which have filed for active ETFs, are now free to launch active ETFs (AETFs) that can closely resemble their original strategies with derivatives, and transition managers into this new distribution wrapper/channel. Possibly, fund firms can elect to partner with a firm like AdvisorShares, which is interested in hiring sub-advisors.
It means that traditional fund companies, whom we begged to stay open-minded in terms of AETFs, will NOW have to invest in new distribution technology, ETFs know-how, and be part of economics that will revolutionize how fund products are bought, used, and managed.

For subscribers of the ETF Business Review, these news are nothing new. For the past two years, we at the leading authority in the fund industry, have been prepping for this moment, advising clients to consider active ETFs as yet another distribution channel for their existing strategies. We highlighted three key success factors: ability to deliver alpha, marketing scale, and human-based talent development (over indistinguishable shelf-products).
Last, consult your attorneys. The race is on, and this is a historical decision.

Atlas has un-shrugged. To join the ETF Business Review and sign here or contact me at rob.ivanoff@financialproductsresearch.com

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The Winning Formula for US Asset Managers

3/22/2011

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Big success is often a matter of science and diligence.

It is possible that people working within the financial services, have no true understanding of how mutual funds work. It is also possible, that many do not understand why mutual funds have become the investment vehicle of choice for investors around the world.

But it is absolutely certain - only a handful of people in the world, grasp the science behind what makes an asset manager win over its competitors.

For that purpose, I want to tell you about a brand new book - The Fund Industry: How Your Money is Managed (Wiley Finance).The book is written by Robert Pozen, Senior Lecturer at Harvard Business School, and Theresa Hamacher, President of NICSA. It is highly appointed, in our industry circles, as the ultimate fund industry companion -  a book that will not be surpassed, not until its next edition - by the very same authors.

The great thing about The Fund Industry is that it clarifies a lot of difficult subjects in the mutual fund area. The book is comprehensive and it covers areas such as history and growth of mutual funds, how funds are sold through brokers, banks, insurance agents and the roles of independent directors and boards. It even goes into the challenges of gathering assets internationally, and the limitations of some alternative products.

And because of the power of internet, which has brought our (networked) personalities together, I asked Bob and Theresa to write a short post for our readers. It pertains to the winning formula for US Asset Managers.

Enter BOB POZEN and THERESA HAMACHER, authors of THE FUND INDUSTRY:

The Winning Formula for US Asset Managers

"During the late 1990s through 2001, US asset managers were frequently acquired by outsiders – Europeans and other types of financial firms such as banks, insurers and broker dealers. For example, Unicredito Bank bought Pioneer and Morgan Stanley bought Van Kampen. However, by 2010, most of the outsiders had left the fund management business and the dedicated fund managers were once again ascendant.

    Why did industry insiders win out over industry outsiders?   Banks , insurers and brokers generally bought asset managers as part of a financial supermarket strategy.

Under that strategy, if the financial firm had customers buying financial product X, it could distribute to those same customers financial products y and z. So it made sense to build an array of affiliated managers who could provide more financial products to the same customer base.

    But the financial supermarket strategy was not effective for several reasons. First, and most important, was the move toward open architecture. High net worth customers wanted the best manager of a fund, not an affiliated one. Second, the SEC began to scrutinize much more closely practices like paying special compensation to brokers who sold affiliated funds.   Third, some portfolio managers did not like the bureaucratic culture of a large financial institutions; they also wanted to be paid on the basis of the performance of the asset management unit, not the performance of the larger institution.

    In 2003-2005, Citigroup and Merrill Lynch both decided to sell their asset management units and to concentrate on distribution of all financial products. These sales in turn reinforced the positions of BlackRock and Legg Mason as asset managers. Between 2007 and 2009, a number of large institutions chose to sell their asset management units in order to raise capital in response to the financial crisis.   These included sales by AIG, Bank of America, Lincoln Life and Barclays.

   Now the asset management industry is again dominated by two groups of dedicated asset management firms. One is the big private firms – Capital Research, Fidelity and Vanguard – which have continued to top the ranks of mutual fund managers. All three are organized effectively as partnerships, though the technical legal format may vary. The second group is the private-public firms like BlackRock, Franklin and T Rowe Price.   While these firms have publicly held shares, they are effectively controlled by their own investment managers.

   Thus, the winning formula seems to be clear – a firm primarily dedicated to asset management that either is privately held or controlled by insiders. These firms have the focus on asset management, the long-term perspective and the informal cultures that are critical to success in asset management."

Note: The statistics on all acquisitions and mergers in the asset management industry are detailed in chapter 15 of The Fund Industry: How Your Money is Managed (Wiley Finance). The celebrated book is out today. To become a member of NICSA- visit their website.

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Rob Ivanoff: Fund product marketing will enter a new era of design with iPad 2

3/2/2011

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This is going to be a short post. Last week, we spoke about the exciting trend of wholesalers adopting iPads, for product presentations. In time for the new iPad 2 just revealed by Steven Jobs today, the ETF Business Review has a charming demo to show you: a new interactive novel Operation Ajax. Go ahead and play the video below. Typically, in this graphic novel you can zoom in on every photo, play video and voice-overs, even interact with the graphics (once it is on iPad). It'll be breathtaking to see what possibilities will come about, once fund firms adopt and perfect the software. Fund product marketing is about to enter a new era of design. Play the video and send us your comments.
(Rob Ivanoff)

Operation Ajax from Operation Ajax on Vimeo.

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Fund wholesalers should wait: Apple announces iPad 2 event for March 2

2/23/2011

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Wholesalers and distribution teams are advised to hold off on new orders for iPad. That is because Apple just announced it will hold a special event on March 2 in San Francisco. According to the invitation received by FPR, the event will be held at the Yerba Buena Center for the Arts at 10:00 am. Historically, this is the same venue Apple has used to introduce other new products. With the specs of iPad 2 being tightly guarded secret, it is widely believed that the device will be announced there. In terms of new attributes, it will feature a front-facing camera. Its size should be thinner too.

Fund firms have been very aggressive in supplying iPads for their heavy-traveled wholesalers. For instance, John Hancock supplied 200 iPads for its distribution team in January. TD Ameritrade, Dreyfus and Hartford's annuity wholesalers reportedly spent undisclosed ammounts on iPads. JP Morgan's i-bankers are also active users. Last, the SPDRs team was spotted carrying a few.

Back in the September, FPR advised all ETF distributors to purchase the device. Most likely iPhone 5 will not be introduced at this event. (the ETF Business Review)

To order the ETF Business Review and other research click here

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BREAKING NEWS: SEC to allow derivatives in active ETFs (AETFs) as predicted by Rob Ivanoff in the ETF Business Review for nearly 5 years; the fund industry is now on a NEW course in terms of distribution, economics, investing in ETF know-how

The Winning Formula for US Asset Managers

Rob Ivanoff: Fund product marketing will enter a new era of design with iPad 2

Fund wholesalers should wait: Apple announces iPad 2 event for March 2

THE ETF BUSINESS REVIEW BLOG

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