Earlier this month, the Morningstar Investment Conference brought together the most innovative minds in investing. Industry leaders gathered in Chicago to discuss the latest developments and trends in financial advice and help advisors and investors alike identify opportunities for growth. The three-day event featured several noteworthy speakers, including Walter Bettinger of Charles Schwab and behavioral economist Daniel Kahneman. This was a historic year for the conference, as it celebrated its 30th anniversary and marked the inaugural event combining both the investment and ETF sides of Morningstar’s conference offerings.
Here are three key takeaways from this year’s conference:
1. Questions remain on use of ETFs in retirement plans.
The retirement plan space presents a promising growth opportunity for the ETF industry. Compared to mutual funds, ETFs tend to have lower management fees because of their cost- and tax-efficient structure. They allow for intraday trading, whereas mutual funds are transacted only at the end of the day. Simply put, ETFs are a more modern pooled investment vehicle that offer investors greater flexibility and more choices.
However, adding ETFs to a qualified retirement plan, such as 401(k)s, would require a change in record-keeping systems. Most 401(k)s are not currently structured to handle the versatility of ETFs, and many 401(k) providers may be hesitant to include low-cost ETFs in their plans. As demand for more options in retirement planning rises, providers will need to restructure to accommodate ETFs.
2. Despite recent regulations, investment advisors continue to seek help launching ETFs.
While there are some major regulatory changes in the pipeline, the idea that launching an ETF will soon be easier and cheaper than ever is misleading. The standards to acquire exemptive relief may ease up a bit, but this is only one small part of the complex process of launching an ETF. The other dozens of pieces – from managing compliance costs, to maintaining industry relationships, to hosting regular board meetings – will still be just as difficult. That’s why we continue to see advisors turning to white-label ETF issuers for help. White-label issuers like Nottingham know the business, have all the required relationships in place and can get exemptive orders approved faster than newcomers.
3. Thematic ETFs are on the rise.
Thematic ETFs are a great way for investors to focus on unique areas of the market that present targeted growth opportunities. Despite the rush to get in on popular themes such as artificial intelligence, ESG, cryptocurrencies and blockchain, a few issues arise with these thematic ETFs. It is never easy to isolate a revenue stream associated with a specific theme in a company’s numbers. For example, even if a publicly traded company does have exposure to crypto and/or blockchain, it likely makes up a small percentage of their overall business. Despite the risks, expect to see an increased adoption of these funds as disruptive technologies expand.