Displaying items by tag: fees

Grayscale has been a pioneer in terms of bringing crypto investments to a wider group of investors with the launch of Grayscale Bitcoin Trust (GBTC) in 2016. For some time, it was the primary vehicle to get exposure to the asset through traditional means. However, the SEC’s approval of bitcoin ETFs means that the landscape is more competitive, with offerings from leading asset managers at lower costs. 

Now, Grayscale is launching a spinoff version of GBTC, which will have a much lower fee of 0.15% vs. 1.5% for GBTC. The new ETF, Grayscale Bitcoin Mini Trust (BTC), will have the lowest fee among all spot bitcoin ETFs. At launch, about 10% of GBTC’s assets will be moved to BTC, which means GBTC shareholders can convert holdings into BTC without having to pay capital gains taxes. 

With the launch of several spot bitcoin ETFs, there were net outflows from GBTC despite bitcoin’s impressive gains over the past few months. Previously, gains in bitcoin would coincide with a surge in inflows into GBTC. 

The success of new bitcoin ETFs from Blackrock, Fidelity, Bitwise, and Ark also shows that there is strong demand for low-cost ETFs in the crypto space. In contrast, GBTC was structured more like a mutual fund. 

Finsum: Grayscale is launching a spinoff version of its Grayscale Bitcoin Trust (GBTC), which will come with significantly lower costs as the asset manager looks to compete with the launch of several bitcoin ETFs.

There is a subtle distinction between fee-based and fee-only advisors. Fee-only advisors exclusively offer financial advice but don’t sell any products with commissions. Fee-based advisors also mainly offer financial advice, but they may also sell other non-investment products with commissions, like insurance. This means that they cannot market themselves as being ‘fee-only’. 

Many advisors are moving to these models due to their simplicity, while there has been an increase in regulations around the fiduciary standard. In fact, the industry as a whole is seeing fewer broker-dealer accounts and growth in investment-advisory accounts. As a result, many products can now be bought in investment-advisory accounts without a commission, such as annuities and alternative investments. 

An important consideration for an advisor going independent is responsibility for compliance. This requires registering with the state regulator or the SEC if there are more than $100 million in assets. It also means responding to regulatory inquiries, developing a compliance program, and having a system to ensure compliance. 

This additional burden highlights the challenge of running an independent shop. Another is that there is less time for clients, especially during the initial stages. Even afterwards, the additional responsibilities will lead to less time and energy for client service, prospecting, marketing, etc. By choosing a fee-only or fee-based model, advisors can have less of a regulatory burden.

Finsum: Many advisors are moving towards a fee-only or fee-based model. The biggest reason is that it simplifies and reduces the compliance demands for advisors.

A major milestone occurred at the end of 2023 as assets in index funds exceeded assets held by active funds. The major factor behind this shift is an increasing preference for ETFs, while mutual funds are falling out of favor. While there has been much focus on the impressive growth rates of active ETFs, the larger narrative is that ETFs are displacing mutual funds, both active and passive. 

According to Cerulli Associates, active ETFs had $129 billion of inflows last year, while there were $65 billion of inflows into passive mutual funds. In contrast, passive ETFs had inflows of $463 billion, while active mutual funds had net outflows of $576 billion.

A major factor is that ETFs have lower costs while also offering more transparency and liquidity. They are also more tax-efficient than their mutual fund counterparts. Additionally, many advisors are now focusing more on asset allocation than security selection, which is also contributing to growth of ETFs. 

Cerulli also noted that more advisors are moving to independent firms from large broker-dealers. “Those advisors, according to our data, believe less in the merits of active investing,” remarked Matt Apkarian, Cerulli’s associate director of product development.

Another trend is that some portion of outflows from active mutual funds are going into active ETFs. Some new issues in the category have been gaining traction, and more asset managers are jumping on the trend. 

Finsum: Last year, there were net inflows into active and passive ETFs and passive mutual funds. But there were huge outflows from passive mutual funds. A major factor is that ETFs are increasingly in favor due to lower costs and more transparency and liquidity.

Morningstar recently completed its annual review of the US Model Portfolio Landscape. It noted that assets under management (AUM) in model portfolios reached $424 billion, a nearly 50% increase over the last 2 years. 

Some of the drivers of growth include enabling an easier investment process, providing access to institutional investors’ insights, and increased fund selection. It allows advisors to outsource elements of the investment management process to the extent that they feel comfortable. The net benefit is that it allows for more time to be spent on client engagement, financial planning, and growing the business. 

Another factor is lower costs. On average, model portfolios are 19 basis points cheaper than comparable mutual funds. In terms of market share, Blackrock and Capital Group are the leaders with $84 billion and $75 billion, respectively representing 37.5% of total AUM. Launching of new model portfolios has slowed as there is saturation in many areas like income, ESG, passive, or active. Instead, new launches are predicted to focus on greater customization such as optimizing tax efficiency.

Finsum: Model portfolio AUM has risen by nearly 50% over the last two years. Reasons for growth include easing the investment process management process for advisors, lower costs, and a greater variety of options.

There is no question that investing in low-cost mutual funds or exchange-traded funds that mirror a benchmark index is a popular strategy to potentially reduce the impact of fees on a portfolio. In fact, many of these passive index strategies have often outperformed more costly actively managed funds. However, while tax efficient, they are unable to fully take advantage of short-term market volatility, according to Neale Ellis and Matthew Michaels of Fidelis Capital. On the other hand, direct indexing has become an attractive alternative to a portfolio of low-cost funds and ETFs, and unlike owning a mutual fund or ETF, an investor directly owns a basket of individual stocks that tracks a designated benchmark index. The strategy also allows greater flexibility during periods of volatility to selectively harvest losses while still closely tracking the benchmark. This is due to the fact that individual equities tend to see much higher volatility than a diversified mutual fund or ETF. This increases the opportunity for tax loss harvesting. Realizing losses in a portfolio can offset capital gains, which creates tax savings. Failing to harvest those losses during periods of short-term volatility could lead to lower results, essentially leaving money on the table.

Finsum:While passive index ETFs are tax efficient, they are unable to fully take advantage of short-term market volatility, which is something that direct indexing can do.