According to Daniil Shapiro of Cerulli Associates, there is a major product development opportunity for active fixed income ETFs in the coming years. A variety of factors are behind this segment’s growing popularity including the increasing acceptance of the ETF structure, growth of advisors who are comfortable with fixed income ETFs, and rising rates which lead to increased structural demand for fixed income products.

The report was compiled by Cerulli Associates based on polling of financial advisors and was covered by Kathie O’Donnel in an article on Pensions & Investment.

The major takeaway is that use of fixed income ETFs by advisors is rapidly growing with 70% reporting use in 2022, up from 63% in 2021. Most ETF issuers pointed to greater advisor acceptance of the product and institutional demand as drivers of the ETF market. Among issuers, 66% see fixed income as their primary focus which exceeded equities at 57%. 

Overall, this survey reveals that there continues to be opportunity for ETF issuers in the active fixed income space, given rising demand. While there are plenty of options in passive fixed income, there are relatively less active options. 

Finsum: The fixed income ETF category is rapidly expanding. Within the space, passive is saturated but plenty of opportunity remain for active managers especially given expectations of rising demand in the coming years.

You’re unlikely to see fresh faces among fintech firms.

People person? Bummer, huh?

In any event, according to a major new report, according to a new report Exploring Fintech in 2023 by Erlang Solutions, driven by the tumultuous economic climate, for the year, half of all fintech firms have nipped hiring in the bud, reported yahoo.com.

Among a number of fintech employees, the first half of last year didn’t exactly smack of a Hallmark moment. From mortgage lenders to firms processing digital payments, across 45 companies, more than 4,000 saw their roles go down the drain.

Chomping at the bit to expand and fueled by factors like low interest rates, during the dawn of the pandemic, Fintechs flourished, according to Bloomberg.com. Since then, a plummet in earnings and slumping shares fueled a drop in earnings among firms.

“After several years of sky-high venture funding and more unicorn valuations than you can count on one hand, a lot of fintechs are being forced to mature and streamline more rapidly than they planned to, and job cuts are a quick way to do so,” said Charlotte Principato, financial services analyst at Morning Consult. “This was bound to happen at some point.”

In recent years, third party model portfolios, of course, have experienced stunning growth, according to wisdomtree.com.

But – and isn’t there often one? – their ability to leverage the models in their practice have been questioned by advisors.

Tapping into insights complied from the WisdomTree Third-Party Model Portfolios Research Study, concerns among advisors include wondering which of their clients are a good fit for third-party models. 

An idea: kick things off with clientele who especially take to third party models.

By tapping model portfolios, advisors can expend more time on activities that involve direct interaction with clients, according to ssga.com. It goes a long way toward bucking up their satisfaction and “wallet share growth.”

The management of portfolios, a gaggle of advisors continue to believe, is at the core of their value. Then there’s the cold reality: the upside of specialized expertise is burgeoning among individual investors. In dispensing comprehensive advice, it’s paramount for advisors to maintain a degree of knowledge across a range of topics. That impacts the time they can invest in activities revolving around the portfolio.

According to an article by Todd Rosenblum of ETFTrends, a survey of financial advisors revealed that 68% of financial advisors gain fixed income exposure for clients through bond mutual funds, followed by bond ETFs at 61% and individual bonds at 58%. 

Yet, the category continues to grow at an impressive rate with about $45 billion of inflows into US-listed bond ETFs. In total, bond ETFs have $1.3 trillion in assets which comprises 20% of the overall base, indicating more room for growth. 

Some of the major advantages of bond funds such as ETFs or mutual funds are increased diversification and opportunities to enhance returns which can’t be found when buying individual bonds. 

Bond funds can even be bought with a specific maturity date when your client may have a need for liquidity. It also avoids the risk of a credit downgrade or default which is elevated in an individual security. Another is that bond ETFs are much more liquid and with tighter spreads than individual bonds. Additionally, many of the most liquid and popular fixed income ETFs invest in hundreds of bonds issued by high-quality companies. 

Finsum: Fixed income ETFs are a fast growing category but still trail behind fixed income mutual funds in terms of popularity with advisors. However, it does offer major benefits compared to investing in individual bonds.

Regulators are looking to get more aggressive about enforcement of Regulation Best Interest (Reg BI) which was passed in 2020. Regulators are particularly focused on sales practices to ensure that fiduciary standards are followed according to a Thomson Reuters article by Richard Satran.

Reg BI mandates that recommendations are offered with impartial advice and explanation of alternatives, including to competing firms. Along with the SEC, Reg BI has also been adopted by the Financial Industry Regulatory Authority (FINRA). 

One challenge for firms and regulators is that automated monitoring of transactions to ensure compliance is lacking. According to Parham Nasseri, VP in product and regulatory strategy at compliance software developer InvestorCOM, Inc: “Putting the risk assessments into a surveillance system for Reg BI compliance involves significantly more challenges than the kind of monitoring that systems have done in the past.” 

New elements to monitor include conflicts of interest, customer profiles, costs, alternative investments, and other client-specific factors. Along with the technological challenges, firms will have to comply with new exam requirements to comply with new sales practice rules. 

Finsum: Reg BI was passed in 2020 but regulators were slow to begin aggressive enforcement given the pandemic. This is changing and firms will be forced to rapidly update sales practices, training, and monitoring.