Why We Are Launching ETF Education Academy

by Aniket Ullal, John Lunt, & Ryan Hessenthaler

The tremendous growth of the Exchange Traded Fund (ETF) industry is well documented.  ETFs now exceed the size of the hedge fund industry with over $3 trillion in assets and 10,000 listings (including cross-listings).  We believe this impressive adoption rate is more than just a narrative of a successful product.  It is one element in the entire re-shaping of the global asset management industry.  It is this seismic shift that prompted us to launch ETF Education Academy as a specialized provider of online ETF education.

We have had the opportunity to be deeply involved with the ETF industry through its growth.  John Lunt and Ryan Hessenthaler established Lunt Capital Management as one of the earliest firms specializing in creating all-ETF portfolios.  This culminated in the successful launch of an ETF in partnership with Elkhorn Investments.  Aniket Ullal was in a product leadership position at S&P Dow Jones, the world’s largest provider of indices for ETFs, before founding First Bridge, a specialized ETF data business.  He has also authored ETF Investment Strategies, a popular book on ETFs published by McGraw-Hill in 2013.

Through these endeavors over several years, we frequently received requests for ETF insights from both financial advisors and individual investors.  We responded by hosting webinars and publishing books and articles.  While these efforts were well received, these formats presented some challenges.  Content became stale quickly and there was limited opportunity for interactivity and customization.  These issues helped lead us to the idea of offering online courses through a specialized academy that could address the demand for professional ETF training.

In our view, the demand for high quality ETF education is being driven by three significant forces.

ETF expertise has become a key factor for advisors to grow their business

The key element that separates the most successful financial advisors is their ability to establish trust with an engaged client network.  Over the last 20 years, this trust was created by demonstrating expertise in the evaluation of stocks and active mutual funds.  These advisors built an in-depth knowledge of portfolio managers and how their funds fit inside portfolios, which was valued by clients.

Going forward however, an in-depth knowledge of ETFs will be a key success factor for advisors.  Advisors will create value and better serve clients if they have an in-depth knowledge of ETF products, index methodologies and ETF portfolio construction concepts.  Clients will expect this knowledge from their financial advisor.  ETF knowledge will position financial professionals to grow their business.

Global regulatory support for transparency will favor those with ETF knowledge

In 2016, the U.S. Department of Labor finalized a rule requiring all financial advisors providing retirement advice to act as fiduciaries. This effectively means that anyone providing retirement investment advice must put their clients’ best interest before their profits. The rule applies to all broker-dealers, registered investment advisers, insurance companies and agents, pension consultants and others providing investment advice to retirement plans or IRAs.  Fiduciaries focus on transparency in allocations, fees, and performance, and all of these elements of transparency are key features of ETFs.

While this rule could get modified before it becomes effective in April 2017, the global shift towards transparency in retirement and investment products is clear.  In the UK, the Financial Conduct Authority (FCA) issued an interim report on the asset management industry in the UK.  Its interim recommendations include enhanced disclosure of fees and benchmarks and a strengthened requirement on asset managers to act in the best interests of investors.  ETFs have also been supported by regulators in Japan, Taiwan, South Korea and other markets.  A global shift towards transparency and fiduciary care will point more financial professionals towards ETFs.  ETF knowledge will provide a competitive advantage for financial professionals.

ETFs are changing investor expectations

The success of ETFs has also changed expectations around fees and disclosure.  Historically, fund investors were accustomed to quarterly holdings statements, whereas now they expect daily transparency.  Similarly, the (typically) lower fees in index linked products are resulting in fee pressure on all fund products.  As a result, clients will expect financial advisors to evaluate these products during their portfolio construction process.

The most successful advisors and brokers will see these trends as an opportunity to grow their businesses and to better serve clients. Their expertise in and adoption of ETFs will be an important factor in client retention and growth.  We believe the ETF Education Academy can play an important role in supporting and empowering financial professionals and investors to stay at the leading edge of investing.