The Wizards of ETFs – Behind the Curtain (1/2)

This is a summary of a session from the Money Management Institute’s 2012 Fall Solution Conference entitled ETFs: To Develop or Not Develop?  This is part one of a two-part series.  You can jump to part two by clicking here.


  • Benjamin T. Fulton, Managing Director of Global ETFs, Invesco Powershares Capital Management, LLC


  • Sam Turner, Director of Large Cap Portfolio Management at Riverfront Investment Group
  • Jill Iacono Mavro, Managing Director, Head of National Accounts, State Street Global Advisors – $337 billion in ETF assets globally, 94% in US, SPY launched in 1993
  • Dodd Kittsley, Senior Product Manager & Head of ETP Research, iShares

How has the trend of advisors shifting towards Rep as Portfolio Manager (RPM) changed your business model?

Turner believes RPM is more of a challenge than a threat since it is the end client experience that matters. Competition from RPM raises the bar, with each crisis causing a shakeout of weaker products and players. The next crisis may not be a market downturn but could be a repeat of 2009 when many government central banks were trying to stimulate their economies through quantitative easing, he said.

Many of the advisors who Turner has spoken to are over-weighted in cash because their client’s are nervous. If the market continues its current upswing into 2013, then this lack of participation could be a risk for these advisors, he warned. Their clients may fire them because they were too cautious.

RPM has also been a huge growth engine outside the US, Kittsley stated. Financial transparency rules enacted in the UK will be a huge catalyst for growth in that market. ETFs are well-suited for managed books of business.

StateStreet’s distribution efforts started in the RIA segment, Mavro explained. They treat it more like an institutional service model. iShares and PowerShares have been focusing on RPM for many years and it has become a differentiator for them on larger platforms Regulatory reform targeting advisors running discretionary portfolios often result in more outsourcing, which benefits firms like Riverfront, she claimed.

Related WM Today Posts
Has Rep as PM Growth Peaked?
Rep as PM: The Inside Scoop

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LPL Strives to Improve RIA Practice Efficiency

This post is a summary of a session from the MMI’s 2011 Annual Convention:

In 2010, LPL Financial grew the AUM on its hybrid RIA platform from $7.3 billion to $13.5 billion, an 85% jump. One of the main drivers that is attracting independent brokers is LPL’s ability to improve practice efficiency.

This point was highlighted by the keynote speaker of the MMI 2011 Convention, Mark Casady, Chairman & CEO, LPL Financial. Mark described the results of a PriceWaterhouseCoopers study commissioned by LPL that found their RIA practices to be 20% more efficient than other platforms. The study also reported that LPL practices generate 80% more revenue per client.

Advisor efficiency is an important metric at LPL. The average advisor can support around 300 households, Mark reported. The industry will need to use a combination of technology and best practices to increase this to 400-600 households ten years from now.

According to a study done by Curian Capital, a Denver-based registered investment advisory firm, 62% of advisors said improving efficiency and overall time management is a major goal for the coming year. One way to reach this goal would be through the use of improved technology platforms, like the one provided by LPL.  Being able to view all of a client’s holdings on a single platform was mentioned by 74% of advisors.  These advisors would benefit from an aggregator such as ByAllAccounts or Albridge (now an affiliate of Pershing).

“Advisors value tools and resources that can help support the marketing and development of their businesses,” according to Mark Schoenbeck, a senior vice president and chief marketing officer at Denver-based Curian Capital. “Providers will need to focus on ensuring that their support programs are practical, relevant and easily accessible, so advisors can quickly and efficiently grow their business.”

Mark pointed out that there aren’t enough advisors in the world.  The number of licensed retail advisors has hovered around 330,000 for past decade and there are about 15-16,000 RIAs.  LPL is looking for ways to make them more efficient so they can handle larger books of business, Mark said.

Advisors have been continuing to invest in technology throughout the financial crisis, according to George Tamer, director of strategic relationships at TD Ameritrade, who was quoted on as saying that:

“…advisors realized one of the ways to get through this—to reign in expenses—is to invest in efficiency; they don’t see technology as an expense, but as an investment.” Tamer noted that it “might not be sexy to buy a CRM system,” but if doing so allows a firm owner to increase the firm’s human capital yield by “increasing non-revenue generating efficiency” it can produce clear bottom-line returns.

One way that LPL has enabled advisors to handle more accounts is via their All ETF Program in conjunction with BlackRock. This program added $1 billion in AUM in its first eight months, Mark reported, and it also increases the practice efficiency by “outsourcing” the investment selection and allowing the advisor to focus on relationship management.

LPL also focuses on practice management, Mark noted, by helping advisors to better support their business today and improve profitability. For example, when they analyzed pricing across their client base and adjusted for practice size and region, they found that most of their advisors were underpriced! They developed “suggested retail pricing” in different parts of the country.