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Dave Nadig
3:15
That will make it easier for firms to manage creation/redemption well, particularly around things like rebalances and heartbeat trades to keep tax liabilities in check.
3:16
BUT, the proposed rule has recordkeeping and board requirements, so it will take some work for firms to comply.
hence why I think this will be phased in over 2020, if I had to guess.
We'll be liveblogging the meeting on wednesday, because we're big ol' nerds for this kind of thing.
Tony
3:16
ETNs are debt instruments of the issuing bank and have default risk, causing some retail investors to avoid. But would there be any barrier to an issuer creating an ETF that packaged together an ETN with a CDS on the issuing bank, essentially creating an ETF version of the ETN with the default risk minimized?
Dave Nadig
3:17
Well, if you package the ETN (a debt instrument) and a CDS (an OTC derivative) into a "bundle" youre going to run into some real issues.
That basically couldn't be it's own 40 act fund, because you own too few assets, and a lot of a derivative contract.
3:18
I'm not even sure what structure you'd have to use.
The math of what you suggest (an insured debt obligation) is totally sound.
But I suspect there's just not enough demand.  ETNs get used for pretty targeted, specialized exposures.
3:19
They have some real advantages in certain corners of the market, particularly thorny tax or trading related ares like, say, MLPs or even commodities.
But I don't think the default risk is really holding anyone back much.
Eco Investor
3:19
I watched your webinar yesterday. You said “your idea of ESG and mine might be very different.” So it was interesting for me to see this headline this morning: “’Green-Friendly’” ETFs hold shares in groups with coal operations” with the subhead: “Investments by 2 State Street-run funds raise questions over fund managers’ practices. It’s like I read on your site often: “You HAVE to look under the hood; know what you’re buying!”
Dave Nadig
3:20
Yeah, I suspect the funds in question are doing PRECISELY what they promised to do on the tin. Almost any time you read an article like this, it's not ferreting anything nefarious out, it's just pointing out the difference between headline-driven expectations and reality.
3:21
Coal's a great example actually.  Is the "green" thing to do never own any company thats related to coal? Or is it to buy tech companies who are cleaning coal plant emissions? Or is it to buy competitors to coal?
I could see all three being valid.
3:22
So yeah, you sort of made my point for me here: especially when you have a SPECIFIC goal in mind, you really have to do your homework, and you cannot just lean on the name of the fund, and a few sentence description.
Janelle Sanchez
3:22
What’s the difference between factor investing and smart beta?
Dave Nadig
3:22
NOT MUCH!
lol
In all seriousness, I think of factor investing as a subset of smart beta.  Smart beta doesn't really "mean" anything in particular.  It's not a term of art, its a marketing slogan.
3:23
But generally the market uses it to mean "quantitative strategies that seek to alter the pattern of returns from a given market segment."
A value fund, a momentum fund, a low-vol fund, or a multi-factor fund all fit that description.
3:24
But there are other strategies that aren't traditionally thought of as factors that would also work.
So for instance, the Research Affiliates methodology for fundamental indexes -- it certainly uses inputs you see in factor strategies, but it's not explicitly targeting "factors."
Same with AI based funds, or hedge fund replication or "guru" strategies.
Or a commodity fund that manages contango;
3:25
those are all smart beta, but not factor strategies.
Jordan
3:25
Loved your talk at Wealth/Stack. In it, you said the future of the RIA fee model would look something like Amazon Prime. Do you know of any firms using a model like this now?
Dave Nadig
3:26
Hi Jordan!  So yes, this is a pretty open topic of conversation in practice management circles.  I highly recommend following Michael Kitces blog, he talks about this stuff all the time.  (kitces.com)
3:27
But yes, there are some large firms working on what is essentially retainer-based fee schedules.  At WealthStack, Creative Planning (a monster firm) disclosed that they basically have an algo that they punch a bunch of info about a client into (measures of complexity and service levels) and it spits out an annual fee.
That's sort of the high end version.  I think a more mass market version would be something like Facet.  You can find good info on both with a quick google search.
3:28
I do think over time, the whole market moves away from AUM-based fees for asset allocation portfolios, and much more towards fee for service models.  Whether thats "all in" costing like Prime, or whether that's more takeout-menu style, remains to be seen.
Ellery
3:28
What was the fiduciary rule & why didn’t it pass? I ask because I wonder what recourse an investor currently has if an advisor recommends a “shady” fund, and the investor loses a substantial amount of money.
Dave Nadig
3:29
So, the Fiduciary Rule was put forward by the department of labor, because they have jurisdiction over retirement accounts.  It basically said "if you advise ERISA-jurisdiction clients (retirement investors) then you have to be a fiduciary."
Fiduciary is the highest standard of conflict-free advice.  It means your advisor HAS to work in your best interest, period.  Really without exception.
3:30
Essentially all independent RIAs are fiduciaries.  Where it gets tricky is with broker affiliated advisors.
there they work sort of between worlds, and you can get into trouble.
3:31
it failed because the DOL got sued, and lost.  The claimants argued the DOL over-reached.
Whether they did or didn't isn't really important, because its gone now.
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