ETF Industry Evolution Pushes Asset Managers to Adapt

As ETF adoption reaches new heights, top industry executives are rethinking their approach to product development and distribution, according to speakers at Bloomberg’s annual ETF conference in New York on Thursday.

With ETF assets in the United States reaching a record $10.6 trillion and year-to-date net inflows hitting $1.03 trillion through November, according to ETFGI data, asset managers must move beyond simply launching products to solving specific investor problems in an increasingly competitive landscape.

The industry needs to move beyond just creating new ETFs and instead focus on developing solutions for clients’ specific needs, according to Anna Paglia, executive vice president and chief business officer at State Street Global Advisors.

“Our clients today don't come to us asking for products, they come to us with problems and our ability to solve those problems,” Paglia, who is also a member of the etf.com Editorial Advisory Board, said.

Asset managers need to make investing more straightforward for retail investors rather than overwhelming them with complex products, according to David Abner, head of global ETFs and funds at Northern Trust Asset Management.

“Investors shouldn't have to make a second career out of managing their money,” Abner said. “It's our job to make it easier for them so they can do that and then move on with their lives.”

ETF Industry Consolidation Shapes Strategy

The ETF industry is splitting into two distinct paths, with larger asset managers growing bigger by offering comprehensive product lineups while smaller firms carve out specialized niches, according to Abner.

Getting shelf space at providers has become increasingly challenging for ETF issuers, prompting Northern Trust and its peers to expand their product offerings, Abner explained. He noted his firm is working on “expanding and broadening out our suite.”

Commission-free trading became a turning point that attracted a new wave of advisors and wealth managers to the products, according to Philip McInnis, vice president and director of investments at Avantis Investors. The change prompted many financial professionals who had been hesitant to finally explore ETFs more seriously.

Looking ahead, Paglia said State Street has filed an application with regulators to create a retirement share class for ETFs, potentially opening up greater 401(k) plan access. She expects potential approval “sometime next year.” The initiative aims to solve technical barriers that have limited ETF adoption in retirement accounts.