Volatility and Technology Push Advisory Services Into New Era
Volatile financial markets and rapidly evolving technology present financial advisors with challenges and opportunities as their relationships with clients quickly change, according to a new white paper from Interactive Data.
One of the bigger challenges for financial advisors, according to the white paper, is that as the markets continue their roller coaster ride investors have a tendency to pepper advisors with more questions about their portfolios than during the preceding bull market when returns were not only rich but reliable. While those bull market days are gone, many investors still expect their advisors to generate returns perpetually, where as younger investors are tempted by the allure of the online brokers' "do-it-yourself" message.
The white paper states that, rather than consider independent sources of investment data a threat, advisors should encourage clients to use the technology to validate their recommendations. Advisors should be transparent and view an informed client as a good thing and even suggest information services and tools that the investors can access to become more informed.
Indeed, according to the white paper, advisors can strengthen client relationships by going beyond simply encouraging clients to pursue their own research. How? By proactively sharing data, analysis and market insights from the advisor's own sources. Further, the easier and more economical it is to access research sources, the more advisors will do so.
The white paper points out that it is important to recognize that many thoughtful clients have an appetite for data, a belief in a shared responsibility with their advisors for investment decisions and value a collaborative relationship with their advisor.
Delivering information resources to clients has become an essential component of client service. Whereas traditionally investment performance has been the key differentiator for advisors, service is increasingly becoming part of the process by which many advisors are judged by their clients. The white paper points out that recent survey data indicates that service is now what sets advisors apart in the eyes of self-empowered clients.
Demand for information, especially from younger, technology-savvy clients, is changing the nature of the financial advisory profession. Younger clients put a premium on receiving information as quickly as possible and are likely to request information at any hour about markets in various time zones, say advisors.
According to the white paper, tablets have accelerated that trend, increasing the need for data to be available anywhere and at anytime, for both advisors and their clients. In fact, the anytime, anywhere functionality offered by tablets can provide advisors and their customers with access to the same information, from the same sources as on laptop or desktop computers, as well as the ability to research and analyze investment opportunities together in one application, wherever they may be.
Financial advisors should familiarize themselves with the technology and adjust their work patterns to be able to conduct business away from their offices. They can also add value to their services by taking the lead in defining and implementing their clients' strategies.
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Expanding ETF Market Increases Need for Transparency and Education
As the use of Exchange Traded Funds (ETFs) has grown, so has the demand on investment firms to provide their clients with more information on the costs, risks and opportunities associated with ETF investing.
Since 2000, global assets in exchange traded products have grown annually by 29%. The rising popularity of ETFs can be attributed to a number of reasons, including the fact that most ETFs have lower expense ratios than mutual funds, they provide access to a wide range of asset classes and they can be bought on margin and shorted like a stock. In addition, because ETFs are traded on an exchange, their value can be tracked throughout the market day. These advantages inherent in ETFs have helped to make them an asset class of choice for financial professionals managing their client portfolios.
The open-ended structure of ETFs also allows for greater transparency into their makeup. ETF issuers generally disclose portfolio holdings more frequently than mutual funds. In fact, most ETF issuers report their holdings on a daily basis on their websites. This increased transparency makes it easier for investors to analyze the type of exposure they get and how one ETF differs from another. They can also see how an ETF's concentration in a particular sector, geography or market cap may be driving the ETF's return. Like mutual fund issuers, ETF issuers also publish standardized fund performance and a net asset value (NAV). Because ETFs are traded, the SEC also requires US ETF issuers to publish to the exchange an intraday NAV (commonly referred to as IOPV, INAV or IIV).
While the opportunities afforded by ETFs continue to grow, so do their complexity. To provide investors access to more asset classes, several years ago ETF issuers started moving beyond the familiar 40-Act fund organization to other structures such as grantor trusts, structured notes (ETNs), and synthetic ETFs (which use swaps and other derivatives). These new traded structures gave investors easier access to more advanced investment tools such as currencies, commodities, volatility strategies, and leveraged funds.
With their popularity and growing complexity, it is no wonder that advisors and investors alike are looking for more ETF education and tools to help them identify the right ETFs to best fit their needs. In turn, ETF issuers, brokerage houses, advisor firms, research and media firms have been enhancing their services to provide increased ETF analysis and decision-making tools that can help explain how to measure an ETF's liquidity, cost and exposure. In addition, a number of brokerage firms are offering incentives, such as "free-trades" for select lists of ETFs, and some 401(k) providers are beginning to offer ETFs as investment choices for plan participants.
We expect the expansion of these types of services and incentives to continue as more advisors adopt ETFs to help manage their clients' portfolios and more investors are exposed to the opportunities offered by exchange traded products.
Global ETF AUM CAGR. Source: ETF Landscape Report, Blackrock, Q3 2011.
HTML5 Offers Enhancements for Desktop Users, Supports Cross-Platform
The technology industry is littered with companies whose glory faded when they failed to foresee where technology developments and customer demands were headed. Vendors relying on those firms' platforms can face a similar fate.
With that history in mind, Interactive Data has already scrutinized platforms which could support the future of Market-Q, a fully-hosted solution that provides financial advisers with real-time financial information as well as tools to manage and analyze it. Market-Q currently runs on Java, and that platform is not disappearing anytime soon. In fact, Interactive Data anticipates supporting the browser-based application on both Java and the new platform for several years to come.
To be prepared, however, Interactive Data has carefully analyzed the three likeliest candidates – Microsoft's Silverlight, Adobe's Flash, and HTML5 – on which to continue developing Market-Q. The first two are supported by some of the largest companies in the technology industry.
HTML5, on the other hand, has no single sponsor, and in fact it is not even a technology platform in the classical sense. These are two reasons Interactive Data finds it so appealing and has determined that HTML5 will be the environment where Market-Q will reside. Leveraging HTML5 will enable Interactive Data to develop one version of Market-Q that can be used across all browsers and devices that support HTML5, including mobile and tablets. This can help to speed development time for new Market-Q capabilities and empower clients to benefit from Market-Q wherever they are.
HTML5 is essentially a set of specifications and methodologies to build applications on which multiple parties agree. Where Silverlight and Flash are proprietary, for-profit platforms offering tools firms can use to develop applications and content that can be displayed on the Web, desktop and mobile devices, HTML5 is open to all potential users.
In fact, Microsoft and Adobe are two of the many technology firms deeply involved in the development of HTML5's numerous standards, or tags, that describe how developers' software can interact with different services to deliver applications and content in as uniform a manner as possible. For users of Silverlight, for example, improving the functionality on their websites depends heavily on Microsoft launching new features. HTML5 explains to users how to develop applications so they are compatible across a wide range of browsers and devices, and then leaves the development entirely up to them.
"HTML5 is different in that it allows developers to solve the problems that Flash and Silverlight address, but against an open standard that is far more portable across hardware and OS platforms," said Marc Batten, VP Engineering & Operations at Interactive Data.
"Market-Q is different than the standard browser application in the sense that it's not just looking at static data but processing real-time market data. It's updating charts, doing complex math and studies and a significant amount of work on the data arriving to the desktop," Batten states. "It's the tags facilitating that intense data crunching that interest us."
So far, mobile and tablet devices such as the iPhone, iPad, Android, Blackberry, as well as many of the main browsers, are beginning to support the tags that are most important to Interactive Data. "Which means we are now writing applications that will work on multiple platforms, so ultimately, we won't have to develop distinct versions for Apple, Android, and others," Batten reports.
Of course, HTML5's draft version has not yet been released, so there's the theoretical risk it will change in scope or not fully live up to expectations. However, large technology providers including Microsoft, Google and Mozilla are all working to add more support for HTML5.
In fact, some of HTML5's tags are already in use by firms that have developed applications based on their pre-draft specifications. Batten points to Yahoo! Mail and Gmail, which now allow users to drag pictures or files from the desktop into an email. "HTML5 defined the behavior and then these companies implemented that tag, and came up with a cool and useful drag and drop functionality that works cross-platform," Batten says.
Of particular interest to Interactive Data is HTML5's "web sockets" tag – also currently in use by some firms. It enables an ongoing conversation between the server of the firm that created an application and the end-user's browser, and it allows the firm to push compact binary data to it. That's much more efficient than typical web browser connections, which can slow markedly when dealing with large data flows.
Another important tag for Market-Q is called "web workers." It enables a multi-threaded processing environment on the browser, so that if a calculation is especially intensive it doesn't slow or halt the user experience.
HTML5 appears to be realizing the promise of providing true cross-browser and cross-platform web applications with performance approaching that of dedicated thin/thick client programs, with all the advantages of simpler deployment and maintenance for IT managers. Interactive Data employs a continuous process of monitoring and evaluating technologies that will deliver solutions faster, with more flexibly and in ways that improve the user experience.
Market-Q Enhancements Provide Greater Insight Into Market Activity
The latest release of Interactive Data's Market-Q real-time market data desktop is designed to enhance wealth managers' ability to provide timely, topical and comprehensive financial advice by giving them greater control and access to detailed information.
Market-Q is designed to provide users with ready access to advanced charting and tools, as well as comprehensive real-time global pricing information, news, level 2 data, research, North American fundamentals, corporate actions and dividend data.
In terms of functionality, the application now enables wealth managers to filter Dow Jones news services using the news organization's numerous category codes. A service guide listing the codes has been added to the Help menu in Market-Q version 3.5.
Users can filter news using two or more categories, assisting wealth managers in keeping on top of macro events, as well as highly specific categories, such as countries, sectors and individual security symbols. And to keep abreast of the latest market-moving events for informed client calls, advisors can activate Dow Jones' "hot stories," now highlighted in red and indicated by an icon.
"We can help advisors keep on top of news and enable them to drill into it to see the potential impact on their clients' portfolios," said Virginia Pastway, Director of Product Management for the Interactive Data Wealth Solutions group.
In addition, Interactive Data has expanded the maximum number of headlines that can be returned to 500 from 300, providing users with more historical perspective.
Filtering by news category has also been added to Market-Q's alert functionality, which can provide alerts according to security symbol, keywords and market dynamics. The Quote Alerts function, for example, now supports the ability to alert by trade size.
"The code categorization system provides enhanced news alerts because they can be defined more discreetly," says Pastway, adding that a financial adviser considering one or more securities, or increasing exposure to a specific sector, can now monitor those potential investments more efficiently. Market-Q's next release is anticipated to allow users to attach dates to parameters, so they can find news at a particular point or period in time.
Market-Q's search functionality has also been upgraded. It now allows users to select a specific financial instrument type by right-clicking in the Main Menu or the Snap Quotes symbol look-up entry field, and toggle between symbol history and symbol look-up modes depending on preference for an instrument type or recently searched symbols view.
In the Fundamentals window's Ownership page, personal ownership data representing holdings of significant personal shareholders and insiders has been integrated alongside institutional ownership information in the top-10 tables for securities holders, buyers and sellers. A new insider-trading summary appears at the bottom of that window, and release dates for companies' next estimated earnings appear in the Fundamentals section's Earnings and Estimates window.
Interactive Data Enables Users to Drill Down to ETF Details
As the financial world becomes more complex and volatile, Interactive Data is enhancing its tools to give clients more control, and as a result more detailed insight, over the financial information they use to drive investment strategies.
Key enhancements to the exchange-traded fund (ETF) functionality available through the firm's suite of web-based ETF applications (collectively called "ETF Center") can enable users to drill down to more detailed information and receive actionable alerts.
Jeff Torchon, VP, ETF Global Markets at Interactive Data, notes that while ETFs have been available for more than 10 years, many investors are still learning about the products. With more than 1,300 ETF products to choose from in the U.S., that task can be daunting.
"Investors need more insight into how an ETF is constructed, the known risks and how they differ from one another," says Torchon. The ETF Screener, one of the solutions available in the ETF Center suite, provides financial firms and their customers with the ability to search for particular ETFs by a variety of parameters such as fees, returns, asset class and fund structures.
Matching results display immediately as users change search parameters, giving them instant feedback on whether they need to narrow or widen their search for a meaningful result. When satisfied, they can save the screen and check back later to see whether any new ETFs have emerged to meet their screener criteria.
A third enhancement, referred to as quick screens, finds ETFs that meet a client's particular investment strategy in one click. "If an advisor reads a white paper about a specific investment strategy, the quick screen can be customized to reflect that strategy, and by clicking it, the advisor immediately sees all of the relevant ETFs that could be considered to implement that strategy," Torchon states.
Interactive Data is also providing more detailed information about how ETFs are trading. The new spread alert application allows traders to set a bid/ask spread tolerance for any ETF and receive an alert when the ETF's spreads surpass their selected tolerance. "With the volatility in the market investors are looking for more ways to stay on top of sudden shifts. Widening spreads can be an opportunity for institutional traders, while retail investors need to be aware of market movements to help them set proper limit orders," notes Torchon.
Meanwhile, Interactive Data has upgraded the ETF Center's correlation calculator. Advisors can use the tool to find ETFs with the highest or lowest returns correlation to another ETF, a stock, a mutual fund, or a portfolio of all three. "The enhancements can help advisors see how securities and portfolios correlate to one another which in turn helps them select ETFs to diversify a client's portfolio, enhance return or implement a regular tax-loss harvesting program," says Torchon.
For more information about Interactive Data's services for wealth management firms, contact Chris Riggio, Vice President of Wealth Management at email@example.com or 212-771-6675.
For more information about the ETF market, contact Jeff Torchon, Vice President of ETF Global Markets at firstname.lastname@example.org or 212-771-6812.
This document is provided for informational purposes only. The information contained in this document is subject to change without notice and does not constitute any form of warranty, representation, or undertaking. Nothing herein should in any way be deemed to alter the legal rights and obligations contained in agreements between Interactive Data Corporation and its affiliates (collectively, "Interactive Data") and their clients relating to any of the products or services described herein.
Interactive Data makes no warranties whatsoever either express or implied, as to merchantability, fitness for a particular purpose, or any other matter. Without limiting the foregoing, Interactive Data makes no representation or warranty that any data or information supplied to or by it are complete or free from errors, omissions, or defects.
Interactive Data and the Interactive Data logo are registered service marks or service marks of Interactive Data Corporation in the United States or other countries. ETF Center is a service mark of Interactive Data Real-Time Services, Inc. Market-Q is a service mark of Interactive Data Pricing and Reference Data, Inc. Other products, services, or company names mentioned herein are the property of, and may be the service mark or trademark of, their respective owners.
©2012 Interactive Data Corporation