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Addressing The Need for ETF Education


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The global Exchange Traded Fund (ETF) industry has grown rapidly in the last 10 years and has over $3T in assets, exceeding the size of the hedge fund industry. The (typically) low fees and transparency of ETFs is expected to continue fueling this growth, and it is likely that ETFs will continue to take market share from more traditional mutual funds.

As these products get increasingly adopted, the need for high quality ETF education has become more urgent. It is this need that prompted the launch of ETF Education Academy, a firm that I established in partnership with John Lunt and Ryan Hessenthaler of Lunt Capital Management. All three of us have had the opportunity to be very involved with the development and growth of the ETF industry. Lunt Capital (where John and Ryan are the principals) was one of the first firms to specialize in creating ETF based portfolios, while my firm (First Bridge) is focused on ETF data and analytics.

While pursuing these efforts, we have often received requests from individual investor and financial advisors for ETF content and education. Though we host webinars and have published other content, these formats had limitations. The content would get out of date and the opportunities for personalization and feedback were limited. This led us to the idea of offering on-demand, online ETF courses through a specialized academy that could serve investors and financial professionals anywhere in the world.

In our opinion, the need for ETF education is being driven by 3 factors:

1. Heightened investor expectations on holdings & fee disclosures

Prior to the popularity of ETFs, fund investors were used to getting their holdings statements at much more infrequent intervals (typically quarterly). Now, they are getting more accustomed to daily transparency in ETF constituent holdings. Further, the (typically) lower fees of index-linked ETFs have put downward pressure on more traditional mutual funds. These changed expectations have resulted in self-directed investors wanting to educate themselves on ETF product availability, structures and the underlying indices. Investors who use financial advisors also expect those advisors to be highly knowledgeable about ETFs.

2. ETF expertise is now an important differentiating skill for financial professionals

Over the last 2-3 decades, financial advisors grew their client base and book of business by being experts on selecting stocks and evaluating active fund managers. It was this skill that enabled them to establish credibility and trust with their investor client base. However, in the future, expertise in Exchange Traded Funds and ETF based portfolio construction will become a more valuable skill. As noted above, retail investors already do a lot of independent research on ETFs and they will expect their advisors to be genuine ETF experts. Financial advisors who understand index methodologies, ETF product structures and portfolio construction concepts will have a significant edge in growing their business. Students who are entering the industry as financial professionals will also have an edge if they have expertise and credentials in the ETF area.

3. Global regulatory support for transparency

Last year (2016), the US Department of Labor finalized a rule requiring all financial advisors providing retirement advice to act as fiduciaries. The rule requires any financial professional providing retirement investment advice to put their client’s best interest before their own. This rule effectively provided a boost to products like ETFs that emphasize low cost and transparency.

It likely that this rule may get modified before April 2017, the current deadline for its implementation. However the underlying philosophy behind the rule seems to have already been accepted by many financial intermediaries in the US. This is also true of many markets outside the US. In the UK, the Financial Conduct Authority (FCA) issued an interim report on the asset management industry that included enhanced disclosure of fees and strengthened requirements for asset managers to act in the investor’s best interests. ETFs have also been supported by regulators across markets in Asia, Europe, Australia, Latin America and Africa.

The need for professional quality ETF education is likely to grow as investors and financial professional use it to grow their portfolios and business prospects. We believe that the ETF Education Academy can play an important role in this process.

Aniket Ullal is the founder and CEO of First Bridge Data, a provider of independentETF data and analyticsto institutional clients. First Bridge is not affiliated with any ETF sponsor and does not promote or distribute any ETF products.

This article should not be considered investment advice. Both the author and First Bridge Data LLC shall not be liable for any actions or decisions made based on the information provided in this article. First Bridge Data LLC is not a registered investment advisor or broker, and does not recommend specific securities, funds, or investment strategies, nor does it advocate the purchase or sale of any individual investment vehicle.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , ETFs



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