Issue V December 2016


Welcome to the fifth edition of the Foreside Connections e-Newsletter!   Foreside Connections serves as a powerful tool for enhancing the ties between Foreside and its valued clients. The aim of this quarterly publication is to keep you informed of new initiatives, corporate updates, upcoming events and industry trends.  We hope you find this publication a valuable resource and welcome your suggestions and feedback.
Letter From The President
Happy Holidays!  On behalf of Foreside, I want to thank you for trusting us to provide your team with services and support to help you achieve your goals. This year has been one of growth for Foreside.  As mentioned in our previous newsletter, Foreside closed on the acquisition of Beacon Hill, which added some of the industry's most experienced professionals, based in Columbus, Ohio.  We are pleased to announce that our Columbus office expansion is now complete.  Our new address is 690 Taylor Road, Suite 200, Gahanna, OH 43230. In addition, Foreside opened offices in New Delhi, India where we plan to expand our development efforts.  We believe that India, and Asia overall, represent a great opportunity for Foreside to expand its global footprint and tap emerging markets.

As we begin the New Year, we continue to focus on hiring industry experts and enhancing our technology capabilities across all aspects of distribution and compliance services. Our growth has enabled us to further develop new partnerships and services for global distribution and compliance solutions. We welcome the opportunity to discuss these initiatives further with your team.  Foreside remains committed to our solutions which allow our clients to focus on their core business without sacrificing business management best practices.  Thank you again for your continued support.
 
David Whitaker
President
Celebrating 30 Years of NSCC's Fund/SERV ®!
(FYI - It's Not Just for Mutual Funds Anymore.)
Those who have been a part of the mutual fund industry for 20+ years surely recognize that Fund/SERV is something to be celebrated.  Those newer to the industry barely give it a second thought...it is quite simply the mechanism by which mutual fund shares are traded.  Each sentiment underscores the revolutionary impact that Fund/SERV has had since its launch in 1986.   At the time of launch there were only six clients with an average daily transaction volume of just over 300 orders.  Today Fund/SERV boasts 1,400 clients and processes an average of 900,000 orders per day. 

Click HERE for full graph.

As relationships between NSCC, funds, service providers and settling banks have developed and matured, so too have the services being offered and the products being supported.  Fund/SERV is now one of several services available from NSCC that facilitate trading, settlement, information exchange, regulatory compliance and more.  As an existing NSCC member, Foreside currently sponsors over 100 fund participant accounts on behalf of UK domiciled open-ended investment companies, Lux and Irish domiciled UCITS, bank collective investment funds and of course US mutual funds.  Foreside works with most major transfer agencies, both domestically and abroad, as well as the major settling banks.  In 2016, in the offshore space alone, Foreside has added over 80 UCITS Sub-Funds representing more than 800 individual ISINs/CUSIPs to its sponsorship roster.

If you have a fund product you believe may benefit from the automation, inherent controls, and the US and LATAM distribution channels made possible via NSCC's Fund/SERV, please contact Emmy Bernard  at (207) 210-6318 or at ebernard@foreside.com  for more information.
ETF & Mutual Fund Net Flows!
As 2016 enters the fourth quarter, ETF products continue to see strong positive net flows while mutual funds, primarily in the U.S. equity sector, are experiencing significant negative net flows.  In the ETF space, according to ETF.com, investors purchased over $14 billion in U.S. and international equity ETFs for the month of October, bringing the YTD combined for those two asset classes at $70 billion.  For the U.S. ETF market as a whole, YTD net inflows of approximately $177 billion through October is on pace to match 2015 numbers.   Mutual fund products, with the exception of those in the US Domestic Fixed Income space, all experienced significant outflows for the month of October as well for YTD.  US Domestic Equity Funds have lost approximately $181 billion so far in 2016 and have not seen positive net flows since February 2015.
All data as of 10/31/2016.  ETF net flow data supplied by ETF.com; Mutual fund net flow data supplied by Investment Company Institute (ICI). Click HERE for full graph.
Foreside Updates!
National Society of Compliance Professionals (NSCP)
The National Society of Compliance Professionals  hosted their annual meeting in Washington, D.C. this past October. The NSCP conference attracts compliance professionals from broker-dealers, investment advisers, private funds, and consultants and provides both introductory courses, as well as more detailed sessions for the seasoned compliance professional.  Topics of interest focused on the DOL fiduciary rule, international issues, fund marketing and distribution compliance, as well as cyber security and internal review.  Attendees from Foreside included Nanette Chern, Jennifer DiValerio and Chris Lane, who got a chance to network with clients, make new professional connections and meet with vendors who provide services to Foreside.  

Investor Economics Executive Forum
Foreside attended, presented and sponsored the second annual Investor Economics Executive Forum in November 2016.  This annual gathering is the largest conference of it's kind in the Canadian Provinces and provides an outstanding executive forum regarding current trends in fund distribution, as well as informative discussions and panels from industry experts across the Canadian mutual fund markets.  Investor Economics is the Canadian affiliate of Strategic Insight in the U.S.  The overarching theme of this conference was one of change and how this change is articulated through the Canadian wealth management platform.  Sessions specifically touched on how key drivers such as demographics, technology, regulation and consumer trends are changing the business.  Foreside's key takeaways is that while many successful Canadian managers are curious and interested in accessing the U.S. market for growth opportunities, the competitive, regulatory, and pricing dynamics that have evolved over the past ten years here, are just beginning to develop in the market to our North.   Foreside will continue to be a beacon of light for those asset management firms looking to enter the U.S. market and will continue to develop a deeper understanding of the Canadian marketplace.  Fun Fact: There is no equivalent in Canada to our SEC.  Securities and regulatory oversight and direction for the asset management industry is largely a Provincial mandate, as opposed to Federally legislated.
Foreside Gives Back!
Foreside employees continued to join together to help our communities in November.  The Berwyn, PA office made a generous donation of food to benefit a local food bank, while employees from Portland, ME provided three Thanksgiving dinners for families through their partnership with Opportunity Alliance.

Berwyn, PA Office.  Left to Right: John Leonard, Bruno DiStefano, Emily Dietrich, Barbara Rice, Patrick Hutton, Rhoda Ndanu, John Donegan.
Foreside's Services

DOL: What are Broker-Dealer's Doing?
The pending DOL Fiduciary Rule is accelerating a number of trends which have been underway over the past several years such as active vs. passively managed, the move to fee-based, fee compression, and the rise of low cost automated advice (robos).  Although the industry continues to interpret the regulation, some major broker-dealers have shared how they will comply with the DOL rule and what direction they plan on moving in.  The below chart provides a summary of their position, if one has been shared publicly to date:

Click HERE for chart.

Some firms have provided additional granularity into the changes they will be making and the timing around them.  Stifel, LPL Financial and Edward Jones have announced there will be restrictions amongst allowing commission mutual fund trades.  LPL is looking to standardize fees on mutual funds by capping sales commissions anywhere from 3% to 3.5%, including also paying the broker a standard 25 basis point trail.  Edward Jones is still allowing the purchase of stocks, bonds, variable annuities and certificates of deposit in retirement accounts with a commission but will not allow the purchase of mutual funds or exchange traded funds.  Stifel is looking to take a middle path between the two.  CEO Ron Kruszewski said, "Where it makes sense, we will utilize the BIC (Best Interest Contract), but we believe this option is more weighted to larger accounts."  Essentially smaller accounts will transition to a fee-based model, while large accounts can retain commissions, pending they use the BIC rule.  Although most firms are enacting their new paths once the DOL filing becomes effective on April 10th, 2017, some are making immediate changes.  At Merrill Lynch, a memo was sent to all advisors in November advising them to stop selling mutual funds in brokerage retirement accounts immediately. 
 
Over  the next couple of months until this rule becomes effective, there will likely be further definition by these Broker-Dealers to outline a path including allowing existing accounts, other products this may effect (i.e. ETFs) and what this means for the asset management world. Foreside is committed to staying on top of and communicating the many distribution related changes that affect our clients.

Contributing author Rachel Pham, National Account Manager at Foreside.
Are you registered and did you know?
Are you a Registered Representative, licensed with Foreside or another broker dealer? Did you know you can access your Form U4 directly from FINRA's website? Visit www.finra.org and search for "snapshot" or visit www.finra.org/industry/web-crd/snapshot-reports to access your personal registration and licensing information including examination scores, continuing education data and previous registration history.
 
Are you due for a Regulatory Continuing Education session? Good News! Effective January 4, 2016 FINRA changed the Regulatory Element of Continuing Education (CE) Program to an online format called CE Online, which allows reps to complete the CE sessions via their own personal or business computer. CE Online offers Registered Representatives the flexibility to complete the program at a time and location that is convenient and without time restrictions. Registered Representatives are able to complete their session all at once or pause the session as often as needed. In addition, Reps will not need to take time away from the office or travel to a test center. Representatives will continue to be provided with a 120 calendar-day window for completion of the Regulatory Element and must complete the session by the required end date of his or her CE anniversary window.

Contributing author Jennifer DiValerio, Managing Director Broker-Dealer Compliance at Foreside.
Foreside Connections Call!
2016 In Review
Over the course of 2016 Foreside has hosted a number of informative conference calls with innovative industry experts to help you, our valued client, with relevant industry topics aimed at the growth of your business. 

Early in 2016 we started with Phil Collier and Jesse Bernhardt of the Raymond James Product Partner Relations Team who provided critical insight and best practices for on-boarding the Raymond James platform, as well as further guidance into maximizing your firm's access and opportunity once on the platform.    Later in the year and continuing with the distribution theme we invited David Abraham and Andrew Gibson of the LPL Sponsor Relations team.  Mr. Abraham and Mr. Gibson delivered a lively discussion on the various LPL platforms, on-boarding requirements, and best ways to successfully navigate LPL, including best practices for research team penetration.    And finally, Richard Cross and Ed O'Bree of Bovill tackled the complex intricacies surrounding Brexit and the implications to U.S. Asset Managers looking to do business in the European Union.  For your convenience, a full replay of any of our past Foreside Connections calls can be accessed HERE.

For 2017 Foreside will continue the quarterly "Connections" calls beginning with industry experts from Pershing, a BNY Mellon Company, as they provide an overview of the firm, education on their platforms, best practices for effectively navigating the distribution landscape and overall industry trends.   Invitations to this exciting and informative call will be sent in early 2017. 
Upcoming Events
Inside ETF's- January 2017
Representatives from Foreside will attend the Inside ETF's Conference on January 22-25 in Hollywood, FL. The Inside ETF's Conference is the premier ETF event with over 120 speakers providing attendees with critical macro insights and actionable portfolio strategies from leading ETF institutions and ETF advisors. For more information on the Inside ETF's Conference please click HERE.

ICI Mutual Funds and Investment Management Conference- March 2017
In March, representatives from Foreside will attend the ICI Mutual Funds and Investment Management Conference in Desert Palms, CA. This conference provides a forum to learn from SEC staff and industry experts about recent and upcoming regulatory efforts affecting funds. Additionally, access to the conference's wide-ranging panel sessions provides an opportunity to listen to industry experts discuss today's regulatory environment and market trends and what that means for the fund industry of tomorrow.  For more information on the Investment Company Institute please click HERE.
Industry News/Resources
For links to recent industry news, resources, and insightful commentary please click HERE .

Financial Fun Fact
On May 17, 1792, twenty-four stockbrokers gathered under a buttonwood tree at 68 Wall Street to sign an agreement establishing rules for the trading of securities on a commission basis.  The Buttonwood Agreement was formalized on March 8, 1817, when stockbrokers formed the New York Stock & Exchange Board.

"The Founding of the New York Stock Exchange (Buttonwood Agreement)"; Artist Samuel H. Gottscho; 1938, Museum of the City of New York.
About Us
Distribution and Compliance Professionals dedicated to your success.
Foreside is committed to delivering innovative services that not only meet current requirements, but also anticipate emerging regulatory and marketplace developments. Clients rely on us to provide the information, operational support and strategic advice that are needed to thrive in today's complex arena of investments, compliance and risk management.  We collaborate with recognized service providers to ensure our clients receive informative and quality services.  Foreside is not affiliated with any of its partner service providers. For more information about Foreside, including service offering overview, staff bios, current industry news and upcoming industry conferences, visit our website at  www.Foreside.com .  



Sincerely,
 

Emmy Bernard
Managing Director, Head of Relationship Management
Foreside Financial Group, LLC