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Edelman: ETFs To Spell End Of Mutual Funds

Olly Ludwig and Drew Voros


ETFs are likely to displace mutual funds within about 15 years, Ric Edelman, the top-rated financial advisor, told attendees at IndexUniverse’s 6 th annual Inside ETFs conference on Tuesday, one of numerous views expressed at the conference that the ETF is likely to be at the very center of the asset management business.

“The mutual fund made sense when it came out in 1924,” Edelman said during a “fireside chat” with IndexUniverse President of ETF Analytics Matt Hougan. “That was a pencil and paper business model, and it doesn’t make sense in a technologically driven world.

Edelman’s views, founded on ETF attributes of low cost, transparency and tax efficiency, were consistent with the general thrust of commentary at the three-day Inside ETFs conference, held at the Westin Diplomat in Hollywood, Fla., from Sunday, Feb. 10 to Tuesday, Feb. 12.

Inside ETFs, considered by many to be the “see-and-be-seen” ETF industry event of the year, takes place at a time when the ETF industry is in full bloom, boasting a record $1.4 trillion in U.S.-listed assets spread over some 1,400 funds.

Speakers at IndexUniverse’s Inside ETFs conference pointed to huge untapped markets and opportunities that will push the 20-year-old investment vehicle’s next leg of growth.

“This industry can grow five to seven times more very easily,” said Mark Wiedman, managing director and global head of iShares. Citing a low 3 percent rate of U.S. ownership as well as untapped foreign markets, Wiedman and other EFT industry leaders kept hammering home the idea that the ETF is still a young and largely misunderstood investment vehicle.

Education Is Mission-Critical

The key to keeping growth strong and steady is more education for investors unfamiliar with ETFs.

“More education is so important for our future growth,” said Joel Dickson, senior investment strategist and principal for The Vanguard Group. Because of the low rate of ETF ownership in the U.S. and abroad, quality education, he said, would be the key to unlocking those potential markets.

New approaches to ETFs will also aid the industry’s next leg of growth. For example, actively managed ETFs and those that give exposure to alternative strategies will offer investors wider exposure.

According to Martha King, managing director ' head of U.S. Financial Intermediaries, ETFs currently cover every major investment segment, a testament to the increased maturity of ETFs. In the same vein, ETFs are changing the market landscape.

“We are seeing larger and larger ETF trades from institutional investors, $500 million trades for instance, that are changing the ways markets are operating and will continue to do so,” she said.

401(k)s, And Active ETFs

On Sunday, speakers focused on several important ETF trends for 2013 that included changes in indexing, free ETFs and the prospect of ETFs to 401(k) programs.

Jim Wiandt, chief executive officer and founder of IndexUniverse, outlined the ETF trends he sees developing.

“Of course, the big trend for ETFs is growth in AUM,” he said, adding that ETF-issuer trends include self-indexing, stealth self-indexing, fundamental indexing, more free ETFs, as well as facing potential pay-to-play platforms featuring fee-free ETFs.

Artience Capital's Kim Nordmo said Sunday she expects to see ETFs coming to 401(k) plans. “There are 72 million investors that don’t have ETFs available” to their retirement programs. Nordmo said she expects more 401(k) administrators to realize the fiduciary responsibility they have to offer those to participants.

The growth of actively managed ETFs was also identified repeatedly throughout Sunday, but State Street Corp. Vice President and Senior Counsel Ryan Louvar described the day that the Securities ' Exchange Commission approves nontransparent ETFs as a “long ways off.”



Ric Edelman kicked off the three-day event with a practice management seminar on how he built his business to $8.5 billion in assets under management.

Edelman also outlined the principles and philosophy behind his 330-employee, 18,000-client business.

We take the clients no one wants,” Edelman said, referring to his $5,000 client minimum. “Wall Street loves to make money for people who already have money. I want to make money for people who don’t have any.”

Edelman’s talk included “The Evolution of a Financial Advisor” as well as the four fundamentals for running a successful advisory practices, which include:clients must be homogenous; advice must be strategic; advisors must be consistent; and a successful advisor's operation must be scalable.

He also extolled the benefits of being an independent advisor.

“Instead of giving your [client] book to your employer when you retire, an independent advisor can sell that book for millions of dollars.”

The conference schedule includes various speakers, including Grant’s Interest Rate Observer’s Jim Grant, a critic of the Federal Reserve and proponent of a return to the gold standard.

The three-day conference also offers various panels, a live ETF trading workshop and keynote speeches that will touch on macroeconomic issues.

Work And Play

Other stars of the business world—if not the ETF world—attending include Twitter founder Biz Stone, who will deliver a keynote luncheon address today, and New York Yankees General Manager Brian Cashman , who will deliver one on Tuesday, the last day of the three-day meeting.

The conference also comes as the first U.S. exchange-traded fund, the SPDR S'P 500 ETF (SPY), had its 20 th anniversary in January.

The fund’s sponsor, State Street Global Advisors, celebrated the occasion at the IndexUniverse conference, hosting a party on Monday evening that went on until the wee hours of Tuesday morning.

CNBC, which began its coverage Monday, is the exclusive broadcast partner of the 6th annual “Inside ETFs” conference. Be sure to also catch On-Air Stocks Editor Bob Pisani on Twitter (@BobPisani).

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