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Monday, June 09, 2014

Pershing's Bolton: Low Fees, No Transactions Are the Future

Reported by Tommy Fernandez

Pershing's Sandra Bolton has seen the future, and it involves much thinner margins for fund firms.

Bolton, who runs the mutual fund platform business for Pershing says that "there has definitely been a trend towards funds that don't have 12b1 fees." firms are rushing to create advisor share classes, institutional share classes. And they are then moving many of these offerings to non-transaction supermarkets like Pershing's FundVest.

During an interview with MFWire at Pershing's INSITE 2014 Conference, Bolton had this to say about the trend:

Fund companies are becoming more flexible in creating institutional and advisory shares. We are changing out platform to accommodate these new shares. We are working like mad to get all of these share classes onto FundVest. We can't even keep up.

There is definitely a move. I am seeing a huge trend to the lowest expense ratio classes, and they are going further. All of these lowest expense ratio classes used to live on the transaction fee platforms. Now advisors are saying "We want the lowest expense ratio AND the non-transaction fee platform."

To gauge Pershing's growth in the non-transaction space, consider these statistics. The custodian had $415 billion total in assets on all its mutual fund platforms, with $101 billion on FundVest. FundVest's assets grew 29 percent from last year, while all of the offerings in total grew just 17 percent.

Bolton and her colleagues are doing all they can to accelerate FundVest's momentum, hence the recent unveiling of the FundVest 200 list.

The list, in part, is tapping into a growing need for due diligence and investment research by broker-dealers and advisors. It could be advisory firms that don't have the resources to substantially build out their research teams, or home offices nervous about the investment decisions made by their reps-as-PMs, she said.

These clients like the idea of being provided research with a hyper-institutional approach, which focuses first on issues such as the structure of the firm, the expertise and stability of the PM teams, the clarity of their investing policy and their consistency in sticking to it.

In the near-future, Bolton said, Pershing plans to go beyond just providing a list and develop tools, such as on the NetX360 to help clients develop their portfolios.

"We're acting as a consultative partner in helping clients grow their advisory business," she said.

For example, Bolton noted that Joel Hempel, chief operating officer for Lockwood Advisors, as well as director of managed investments for Pershing had discussed during conference panels Pershing's plans to develop a turnkey managed account offering for all Pershing clients. Via this offering, Pershing will ultimately offer portfolios based on the list. For example, Pershing could create, say, a small cap balanced mutual fund wrap sourced directly FundVest 200.

"That is exactly where we want to go. We want to take of the work we did with FundVest 200 and create portfolios," she said.

When asked about the pain that fund firms feel in these efforts to scrimp and cut their margins, Bolton said "yeah, well, welcome to our world."

However, cutting margins to get on a FundVest gives firms a key advantage in garnering flows, she said. These flows increase significantly if a firm has the good fortune of being selected to select lists like FundVest 200.

She described the impact of select lists on fund flows in this way:

It is significant. Why do you think fund companies aspire to get on these lists. They get very excited.

I have heard numbers all across the board. I've heard it on other panels with my peers, when they talk about 40 to 50 to 60 percent of flows going onto their select lists. For a fund company it is a great thing for them.

She noted that Pershing already has systems in places for tracking the flows into the list, having developed a flag for each of these funds so they get picked up by Albridge Analytics' systems.

"We just want to see the growth of mutual fund assets on the FundVest platform," she said.  

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