IU.com: Are you pretty much of an unequivocal fan of ETFs, or do you see some downsides?
IU.com: Please explain.
Dorsey: The reason I’m an unequivocal fan is, No.1, I’m probably the first person to ever be involved with an ETF with the Philadelphia Stock Exchange when they created the index participation unit which was the first ETF that ever traded in the 1980s. It was a Standard & Poor’s 500 security.
The problem with that first one is we used derivatives as the underlying, and ultimately we were sued by the futures exchange as being a futures product instead of a fund, and the futures exchange won and took the product.
IU.com: Right, I've heard about those.
Dorsey: So when that didn’t work, the Toronto Exchange came to the Philadelphia exchange and said, “Hey, could we use your template?” The Philadelphia exchange gave them a template and they came out with the TIPs, Toronto index participation units. But the difference here is the underlying was real stocks. So it was the first one that took and traded and has been trading every since.
IU.com: So that’s really the first ETF.
Dorsey: Yes, and I can’t tell you how many seminars I have taught to professionals on ETFs and the eyes that widen and the lives that change once they understand it and understand how to use it; it tells me we’re on the right path and this is the exact right product.
Like I’ve said to you before, it’s probably the most important product ever created in my 39 years in this business. And I believe back then when I talked to you that we’re in the first foot of a 26-mile marathon.
IU.com: And regarding this educational effort that needs to take shape over the coming years, when does a typical investor with sizable investable assets turn to his or her broker and say, “Listen, we need to segue my holdings into an ETF wrapper”? Will that happen in five years, or 10 years? What do you think?
Dorsey: I'd say we’ll be a long way down the road in five years. So, any stockbroker out there, any advisor, had better embrace ETFs, had better embrace ETF alchemy and understand how to put these portfolios together, and companies like DWA need to help brokers. Because as fees and commissions continue to get more compressed, they have to find new ways to go out and talk to the public and get new accounts.