Newly launched ETFs compete against other funds for the attention of advisors and brokers. See how market access platforms can help ETFs get traction.
As the exchange-traded fund (ETF) market matures and gets more competitive, new offerings crowd the marketplace. ETFs have numerous benefits, such as lower fees and tax efficiency. Today, challenges await new funds after launch, particularly with so many vying for traction. For those considering taking the initial steps towards launching a new fund or expanding their current offering, addressing competition and marketplace access is more critical than ever.
The demand for ETFs is undeniable as surveyed in Pershing’s 2016 report, The Evolving ETF: Using Exchanged Traded Funds in Client Portfolios: 64% of advisors view them as critical to their clients’ portfolios. But the increasingly crowded space presents hurdles for new funds gaining the awareness needed to reach their goals.
Currently, ETFGI reports more than 5,000 ETFs exist worldwide, including 522 new ones that launched through 3Q 2017. However, many funds fall into the trap of viewing the launch as the final step in the process. They fail to take into account the marketing, sales and market access considerations that are needed to differentiate the fund to prospective financial advisors, wealth managers, broker-dealers and registered investment advisors (RIAs).
Funds launched without a sound post-launch strategy risk being added to the legions of “zombie ETFs” or funds that are seeing little trading volume; or increased investment. Worse, they face the eventual prospect of being closed. 128 ETFs were closed in 2016 alone, and 197 through 3Q 2017 as reported by ETFGI.
“To aid in successfully launching a new fund, sponsors must focus planning on two key areas: market access and marketing.”
An ETF needs a compelling, concise narrative that differentiates it from its competitors. Understand what the audience needs, and where the gaps are in the current landscape. Make sure the marketing story has broad appeal, even if it’s targeting a niche market.
Performance, alone, isn’t enough to stand out. The messaging for an ETF needs to demonstrate that it is a product that provides a better or new solution for investors.
In a 2015 survey by PricewaterhouseCoopers called, “ETFs: A Roadmap for Growth,” 42% of ETF sponsors cited lack of effective distribution channels as a potential limiting factor for growth. Distribution, or market access, is critical to gaining exposure to brokers, institutions, RIAs and financial advisors.
When creating a plan for post-launch market access, one of the most important decisions to make is selecting the right third party platform. One key area to judge prospective platforms is the quality of research, thought leadership and overall educational experience it provides its clients.
Are clients able to view industry-leading reports from Morningstar and Lipper? Does it allow users to compare, buy and sell ETFs? In addition to traditional ETFs, does it offer access to smart beta funds and no-transaction-fee funds?
The functionality, features and number of clients a platform has can directly impact a new fund’s ability to gain exposure and effectively differentiate itself.
Choosing a service provider that offers a finely tuned launch process can greatly increase an ETF’s chance of success by facilitating a relationship with a market access platform. Our ETF platform, available through BNY Mellon’s Pershing LLC, provides issuers the market access they need. In fact, issuers leveraging our new no-transaction-fee (NTF) ETF platform, FundVest® ETF — housed within the broader ETF platform — have the potential to raise their profile and grow their business among a network of 100,000 investment professionals from 750 broker-dealers and 350 registered investment advisory firms. Further, our ETF platform also provides access to an ETF Center, which offers opportunities for enhanced distribution support through event sponsorships, webinar participation, and speaking opportunities, as well as publication of commentary and market intelligence.
While access to our ETF platform does not guarantee success, it can serve as a potential facilitator to help ETF developers and managers gain market access needed to drive potential growth.
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About BNY Mellon's Pershing
BNY Mellon's Pershing and its affiliates provide advisors, broker-dealers, family offices, hedge fund and '40 Act fund managers, registered investment advisor firms and wealth managers with a broad suite of global financial business solutions. Many of the world's most sophisticated and successful financial services firms rely on Pershing for clearing and custody, investment and retirement solutions, technology, enterprise data management, trading services, prime brokerage and business consulting. Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of 23 offices worldwide, Pershing provides business-to-business solutions to clients representing more than 7 million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. Additional information is available on pershing.com, or follow us on Twitter @Pershing.
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Chief Executive Officer, Exchange Traded Funds
BNY Mellon Asset Servicing
Jeff McCarthy, the Chief Executive Officer of Exchange Traded Funds for BNY Mellon is responsible for leading and executing the long-term strategy to drive growth in BNY Mellon's ETF business. As part of this mandate, he plays a critical role in the successful enterprise-wide delivery of comprehensive ETF solutions to the marketplace, and works to further develop long-lasting partnerships for BNY Mellon in the ETF industry.View Profile