September 20, 2016

Department of Labor Conflict of Interest Rule Expected to Boost Advisors' Allocation to ETFs by 65 Percent, According to BNY Mellon

NEW YORK, Sept. 20, 2016 /PRNewswire/ -- Financial advisors are likely to recommend that their clients increase allocations to exchange-traded funds (ETFs) by 65 percent as a result of the recent Department of Labor (DOL) Conflict of Interest Rule, according to a white paper by BNY Mellon, a global leader in investment management and investment services.

The survey results indicated that advisors in the study currently have 23 percent of their assets under management in ETFs, and they plan to boost that allocation to 38 percent over the next two years as assets are transitioned to ETFs from other products. That would increase the percentage of assets allocated to ETFs by 65.2 percent. Approximately 55 percent of the 170 advisors polled by BNY Mellon said they plan to increase their investments to ETFs because of the rule, which becomes effective in April 2017. 

The white paper, Accelerating Growth: The Department of Labor Conflict of Interest Rule and its Impact on the ETF Industry, produced by BNY Mellon in association with ETF Trends, was released today at etfXchange '16, BNY Mellon's annual exchange-traded funds (ETF) symposium. 

"The rule requires financial advisers to recommend investments that are in the best interests of their clients when they offer guidance on 401(k) plan assets, individual retirement accounts or other qualified monies saved for retirement," said Frank La Salla, chief executive officer of BNY Mellon's Global Structured Products and Alternative Investment Services business. "This includes emphasizing financial services products such as ETFs that tend to have lower fees than other types of investments."

The advisors said they will increase their use of both actively managed ETFs and passively managed ETFs. They also said they expect to increase their use of separately managed accounts and decrease their use of unit investment trusts and annuities. Funding for the growing products is likely to come at least in part from the declining products, according to the survey.

La Salla noted that cost will not be the only factor determining the types of assets that advisors recommend. "The advisor and the client might be looking to fill a need in an investment portfolio, such as obtaining exposure to a particular asset class or country," he said. "The best product might be an ETF, or it might be a mutual fund or some other financial product."

While the respondents indicated they expect continuing rapid growth of ETF assets, they said that changes in three areas are needed to facilitate this growth. First, the majority of defined contribution programs will need to upgrade their technology to trade ETFs, as many do not have this capability. The DOL rule could accelerate the introduction of the necessary technology as plan sponsors and advisors will be more motivated to offer these products.

The other two areas are education and information access.

"The ETF industry will need to accelerate the educational efforts about ETFs and the DOL rule among industry participants to smooth the way for projected growth," said Steve Cook, managing director and business executive for BNY Mellon's Structured Product Services. "As to accessing information, ETF-oriented advisors tend to favor accessing research in small bites rather in long documents. They prefer to learn about new offerings via virtual webcasts rather than attending conferences or attending sales meetings."

LaSalla concludes that registered investment advisors (RIAs), like brokers, are likely to give ETFs serious consideration. "Given the fee-based nature of RIAs, their level of sophistication and willingness to adopt new strategies to help their investors to optimize their investments, it would seem natural for them to embrace ETFs even more."

To access the full report, please click here: 

About ETF Trends and its team of editors, writers, and financial experts work hard to bring the latest news, trends and insights from the world of exchange traded funds (ETFs). The exponential proliferation of ETFs provides a wealth of opportunities for investors who understand their potential. They cover an enormous range of specific investing possibilities that carry diversified risk. ETF Trends was born out of the abundant research performed by asset managers at Global Trends Investments. With decades of experience in the financial services industry, ETF Trends continues to identify the advent and evolution of ETFs and their ability to serve as primary investing tools for individuals. ETF investing empowers investors to capture sectors, asset classes and global regions to capitalize on the efficient marketplace while diversifying for risk. ETF Trends' news stories focus intently on educating investors regarding specific offerings, current market trends, sectors, economies and sentiment about every ETF market.

About BNY Mellon

BNY Mellon has a long history supporting the unique servicing needs of ETFs and has played a leading role in the development of procedures and systems integral to some of the first and most innovative products of the ETF industry. As of June 30, 2016, BNY Mellon supported 35 issuers offering 619 separate portfolios in the U.S., Europe and Asia with a total of $310 billion in net assets.

BNY Mellon's Asset Servicing business supports institutional investors in today's fast-evolving markets, safeguarding assets and enhancing the management and administration of client investments through services that process, monitor and measure data from around the world. We leverage our global footprint and local expertise to deliver insight and solutions across every stage of the investment lifecycle.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2016, BNY Mellon had $29.5 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on Follow us on Twitter @BNYMellon or visit our newsroom at for the latest company news.

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