Trends like exponential growth, new entrants to the space and investor focus on low-cost products have led to an increased interest in front-to-back ETF servicing solutions. These trends are also prompting providers to take a more consultative approach, helping sponsors develop their own internal workflows. In fact, basket services and workflow fees are the most important processes in the ecosystem. However, it’s not a one-size-fits-all situation.
As fee compression on sponsors continues, they need to do more with less, and ETFs are an attractive option. In introducing sponsors to the ETF ecosystem, service providers must add value and provide the tools and resources each client needs, such as technology, education and compliance oversight. These resources enable sponsors to act in real-time and provide quality service to their own clients.
Securities lending is another growing trend that can also benefit from a front-to-back provider. Particularly for new entrants, a central place for education, troubleshooting and communication is important, as is being able to access all data from a single technology platform. Securities lending products are low-cost, generating additional alpha through increased revenue and reduced expenses.
Environmental, social and governance (ESG) is becoming a decision driver as well, as the increasing impacts of climate change become more apparent in our daily lives. Many investors want to know that their portfolios reflect their ESG interests, but evaluating a company’s ESG score can be difficult. Data standardization is important for ensuring that all companies are being evaluated in the same way.
While many clients see mutual funds as the most efficient wrapper, the asset management industry is becoming more vehicle agnostic. However, the trend of mutual funds converting to ETFs is still in the early days. It is important to solve core structural issues, such as fees and strategy, before converting to an ETF because the conversion will not solve those issues.
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