Advisors from independent broker-dealers and wirehouses invested $150 billion and $40 billion, respectively, in actively managed funds in the first half, but net new flows were driven entirely by low fees and institutional-priced share classes, according to data released Monday by Broadridge Financial Solutions.
Broadridge reported that the majority of positive flows resulted from conversions out of load funds (share classes A, B and C), which declined by $122 billion for IBDs and $37 billion for wirehouses.
First-half positive flows into actively managed funds occurred even as advisors continued to invest client assets into passively managed exchange-traded and index funds at an increased rate, Frank Polefrone, senior vice president of Broadridge’s data and analytics business, said in a statement.
“Net new asset flows into institutional shares of actively managed funds in the first half of 2017 is further proof that price and performance are the driving factors in advisor fund selection,” Polefrone said.
“We expect to see the move to lower-fee share classes continue throughout 2017 as the majority of advisors move to a fee-based practice, and the broker-dealer home office realigns the mix of share classes offered to meet both client demand and regulatory requirements related to the DOL fiduciary rule.”
Focus on Fees
Broadridge said its data showed that virtually all net new assets in the January-to-June period flowed to lower fee products: ETFs, index funds and institutionally priced actively managed funds.
Net new assets increased by 5.5%, or $566 billion. About 77% of fund and ETF flows, $433 billion, wound up in lower-fee passive products.
Of the remaining $133 billion of net new assets that went into actively managed vehicles, the entire amount flowed into lower-fee institutional share classes.
Broadridge said the growth of lower-fee products was especially prominent in distribution channels that support fee-based advice, such as the RIA and online channels.
Net new assets into actively managed funds from all retail channels — independent broker-dealer, wirehouse, RIA and online retail — rose by $87 billion, compared with $48 billion for passively managed funds.
The direct online channel experienced the fastest first-half growth, up 20%. Net new flows of mutual funds increased by $67 billion, or 22%, for the online channel, with $36 billion of this going into actively managed funds.
Vanguard and Schwab are driving growth of the online channel, offering a wide range of index and lower-fee actively managed funds, Broadridge said.
Later this year, Vanguard plans to add two international balanced funds to its actively managed lineup.
In early July, Schwab added 15 funds to its commission-free ETF OneSource program.
“Today’s advisors march to the drumbeat of ‘fees, fees, fees’ and fund manufacturers without a low-cost solution are, at best, being ignored and at worst, getting trampled,” Broadridge’s director of fiduciary and compliance research, Jeff Tjornehoj, said in the statement.
Tjornehoj noted that while equity mutual funds had outflows of $69 billion collectively, those with an expense ratio of 20 basis points or less had inflows of $93 billion.
“The battle ahead is about how fund sponsors will accept a fraction of what they historically collected. Even channels that traditionally supported premium priced products, such as wirehouses and broker-dealers, have shifted strategies based on fees.”
In the first half, overall assets for ETFs increased by 11.6% to $3.1 trillion, according to Broadridge data. The biggest increase occurred in the RIA channel, with net new assets of $78 billion, up 11.4%.
RIAs remained the largest channel for ETFs, with more than $800 billion invested in the products.
— Check out The Price for Advice Is Changing on ThinkAdvisor.