The CEO of Russell Indexes says recent changes in the ETF industry accentuate the need for index providers to contribute more value to their clients.
Few are more knowledgeable about the world of indexing than Ron Bundy, chief executive officer of Russell Indexes. With more than $3.9 trillion in U.S. institutional assets benchmarked to Russell’s family of indexes—more than all other U.S. equity indexes combined—IndexUniverse’s U.S. Editor-in-Chief Drew Voros thought Bundy would be the perfect person to speak with about all the changes index providers and the ETF industry are seeing, particularly in the past several weeks. From Bundy’s perspective, the changes are competition as usual in the index providing space, which he says is good for investors.
IndexUniverse: For index providers in the ETF space, October was a whirlwind month in terms of news and change. Now that you have had some time to digest it all, what is the biggest change the industry faces?
Ron Bundy: Change is good for our industry, it’s good for our clients and most importantly, I think change is good for the end-investor.
What we’re seeing in the marketplace right now is a reminder that we are in a very competitive environment and we have been for some time. Recent announcements such as Vanguard moving away from MSCI’s indexes to lesser-known index providers is just one reminder of the competitive nature of this business. What that means to firms like Russell and other index providers is that we need to continue to offer value to our clients for the fees that we charge. We have to continue to bring product and services to the market that are relevant, not only to the ETF sponsors that we work with, but most importantly, to the end-client.
IU: Do you feel the pricing pressure that MSCI probably felt with Vanguard? And how do you react to that?
Bundy: There is certainly pricing pressure in the market. We’re seeing that across the financial industry, not just specific to indexes or ETFs. At Russell, we’re very aligned with our major ETF partners, so any challenge that arises for them becomes a challenge for us as well. But again, you’re going back to the competitive nature of the business. We have to continue to add value. That value comes from research, from product development, from our operational capabilities, our technology platforms and the level of service that we provide to your clients. One of the responsibilities of index providers is to differentiate themselves and educate the industry on the differences in index methodology and why those differences matter.
IU: Do you see more changes coming like we saw in October with the Schwab and iShares fee cuts, and Vanguard’s change of index providers?
Bundy: It’s impossible to predict the future, but I’m not certain these changes constitute a trend. I would look at October as a burst. Given my place in the industry, and the amount of conversations I have with my counterparts and industry colleagues, a lot of the changes we saw happening in October have been under way for much longer. The long-term impact is that index providers are going to resharpen their skills. We’re going to have to make sure that the products we’re bringing to market have value to the end-investor and that we’re providing them in a way that’s transparent and coupled with the education that investors deserve. So the competitive nature that you’re seeing today I think is a permanent part of our business. And that’s a good thing.