Issue VI March 2017


Welcome to the sixth 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
Thank you for your continued confidence in Foreside. On February 7th we announced that Lovell Minnick Partners, a private equity firm specializing in financial and related business services companies, is acquiring a majority stake in Foreside. After careful consideration, we believe an investment by Lovell Minnick offers a compelling opportunity for our clients and employees. There will not be any day-to-day changes impacting clients and, with Lovell Minnick's capital base, Foreside will have the opportunity to invest in additive technology, incremental personnel, and complementary services. The transaction is anticipated to close, subject to any necessary governmental and regulatory approvals, in the second quarter. Our shared goal of the transition with Lovell Minnick Partners is for it to be seamless to our clients. All parties expect that our clients will continue to receive the same high-quality services they receive from us today, delivered by the same core team of professionals.

As we near the end of the first quarter, we continue to focus on hiring industry experts and enhancing our technology capabilities across all aspects of distribution and compliance services. We are pleased to announce the hiring of Sunil Panikkath as Chief Technology Officer and Kelly Whetstone as Deputy General Counsel. As mentioned in our previous newsletter, Foreside's Columbus office expansion (690 Taylor Road, Suite 210, Gahanna, OH 43230) is now complete. In addition, Foreside is expanding our Portland offices, with expected completion in the second quarter of this year.

Finally, we continue to develop new partnerships and services for global distribution and compliance solutions. We welcome the opportunity to discuss these initiatives further with your team. As always, we remain committed to solutions that allow our clients to focus on their core business without sacrificing distribution and compliance best practices. Thank you again for your continued support.

David Whitaker
President
ETFs/ETPs Continue to Grow with Record Inflows
According to ETFGI, a leading independent research and consultancy firm on trends in the global ETF/ETP ecosystem, ETFs/ETPs gathered record inflows in February 2017 of $68.29 billion, marking the 37th consecutive month or over three years of net inflows.  In total, assets reached a new high of $3.844 trillion US dollars at the end of February 2017. This record passed that of what was set in January 2017 of $3.689 trillion US dollars in assets. Of the total assets at the end of February 2017, $2.758 trillion are held in the US, $620 billion are in Europe, $136 billion are in Asia Pacific ex Japan, $198 billion in Japan, and $91 billion in Canada1.

Of the $68 billion of inflows in February 2017, equity ETFs/ETPs accounted for $44.59 billion, followed by fixed income with $14.38 billion, and commodity ETFs/ETPs with $6.01 billion. iShares gathered the largest net inflows in February 2017, followed by Vanguard and then SPDR ETFs rounding out the top 3. At the end of February 2017, the ETF/ETP industry globally had over 6,699 ETFs/ETPs products, with 12,646 listings, from 298 providers listed on 65 exchanges in 53 countries 1.


Click HERE for full chart.

Foreside is the underwriter for over 20 ETF/ETP sponsors, comprising over 298 funds, with AUM over $71 billion. Foreside also maintains over 255 exchange-traded product Authorized Participant (AP) Agreements.

To learn more about Foreside's ETF/ETP offerings please contact Jason Knight at (207) 553-1955 or jknight@foreside.com.

Asset Manager "Chaperoning" under SEC Rule 15a-6
Recent enforcement actions and public statements reflect increased scrutiny by the SEC on whether private fund managers should register as broker-dealers.  Foreside provides "chaperoning" services to asset managers located outside the United States that want to market private funds to U.S. institutional investors under SEC Rule 15a-6 and avoid the need for broker-dealer registration with the SEC and FINRA.
 
SEC Rule 15a-6 provides certain exemptions from broker-dealer registration for non-U.S. persons whose securities activities would otherwise require registration as a broker-dealer if conducted in the United States.  Among other things, it allows non-U.S. persons to solicit "U.S. institutional investors" or "major U.S. institutional investors" (as defined by the rule) if they enter into an agreement with a chaperoning U.S. registered broker-dealer who keeps certain books and records, participates in communications as required, obtains certain representations and consents, and otherwise satisfies the rule's requirements.     
 
Foreside enters into chaperoning arrangements with asset managers outside the U.S. under which the asset manager can have contact with and visit U.S. institutional investors to market private funds, subject to the terms and conditions of the agreement.  Foreside's chaperoning services include:
  • Providing qualified registered representatives to accompany the asset managers' personnel on visits to U.S. institutional investors as required, copied on and review communications between the asset manager and U.S. investors, and participate on phone calls between the asset manager and U.S. investors as required.
  • Reviewing marketing material provided to U.S. institutional investors. 
  • Maintaining certain required information and consents from the asset manager and other records in connection with the asset managers' activities with the U.S. institutional investors.
For more information on Foreside's chaperoning services, please contact Mark Fairbanks at (207) 553-7112 or mfairbanks@foreside.com .
 
Foreside Connections Call
2017 Update
Throughout 2017 Foreside will continue the "Connections" calls, featuring industry experts who will provide their insight on industry trending topics.  Stay tuned for information on our next call!

For your convenience, a full replay of any of our past Foreside Connections calls can be accessed HERE .

Foreside Updates
10th Annual - Inside ETFs Conference (January 22-25, 2017)
Representatives from Foreside kicked the year off attending the 10 th Annual Inside ETFs Conference.  Foreside has been a returning exhibitor for 5 years and has been attending the conference for 10 years. The conference is the premier ETF event and was a great opportunity to connect with our existing clients and partners, while gaining critical insights on the ETF industry from leading ETF institutions and advisors. The conference featured over 120 speakers covering a range of topics and challenges impacting this rapidly growing market segment.  Replays to a number of these presentations over the four day conference can be accessed HERE

IAA Investment Adviser Compliance Conference (March 2-3, 2017)
Susan Chamberlain and Beverly Langley, both members of Foreside's Investment Adviser Consulting Group, attended the 2017 IAA Investment Adviser Compliance Conference in Washington, DC.  The conference is a great opportunity to learn how to further navigate the complex regulatory landscape, given new and upcoming regulatory requirements. Some of this year's key topics included cybersecurity, business continuity and transition plans, as well as SEC examination and enforcement development. Information on the 2018 conference can be obtained HERE.

ICI Mutual Funds and Investment Management Conference- March 2017
In March, representatives from Foreside attended 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 provided 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.
Foreside Gives Back
Foreside had three teams bowling in the Big Brothers Big Sisters annual Bowl-a-thon.  These 15 Foreside employees are helping raise funds through their largest annual fundraiser, which raises over $20 million annually for children in need across the country.  Because of Bowl for Kids' Sake, more Bigs and Littles can be paired up, more friendships can be created and improved outlooks on life can be started.  It takes $1,000.00 to support a Big Brother/Big Sister relationship for the year and through the dedicated support of the Foreside bowlers below, they proudly raised over $2,000, enough money to sponsor two relationships.
Back Row (L to R): Thabo Kasongo, Alex Bubier, John Leonard, Nick Pham, Daryn Levesque, Gabriel Edelman, Bill Cox.  Front Row (L to R): Rachel Pham, Sam Swift, Monica Boissonneault, Alicia Strout, Ceara O'Neil, Dayna Kazilionis.
 
Big Brothers Big Sisters is a great organization that matches meaningful, monitored matches between adult volunteers ("Bigs") and children ("Littles"), ages 6 through 18, in communities across the country.  They develop positive relationships that have a direct and lasting effects on the lives of young people.  Big Brothers/Big Sisters targets children who need us the most, including those living in single parent homes, growing up in poverty and coping with parental incarceration.  For more information on Big Brothers Big Sisters please click HERE.
Foreside's Services
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DOL: Broker-Dealers and the "T" Share
The DOL fiduciary rule is accelerating and requiring broker-dealers to commit to the type of fee models their advisors can operate under, as well as require rationalization of the over 24,000 CUSIPs available today. With that, the industry has seen the introduc­tion of a new commission share class, better known as the transactional or "T" share class.  The attached white paper shares further insight into what "T" shares are, who is requesting them, and how you go about starting the process. 

T Shares
Click HERE for "T" Shares White Paper.

Foreside is committed to staying on top of and communicating the many distribution related changes that affect our clients.  To that end, the DOL proposed a 60 day delay in the enforcement date of the fiduciary rule, which would now push it back to June 9th, 2017.   Many firms who filed for T shares are holding off on launching them until further clarity is received.  Plans by Morgan Stanley Wealth Management to offer T shares have also been suspended at this time, with other platforms hinting they may follow suit.  As stated earlier, Foreside will continue to be a resource on this ever-evolving topic.
Financial Professional Gateway
Foreside is piloting a new FINRA platform called Financial Professional Gateway.  This new tool allows active registered representatives to see current registration information including state registrations, examination history, regulatory continuing education status and other relevant registration related data.  Foreside invites you to establish a Financial Professional Gateway user account by visiting www.finra.org/industry/finpro.

This first phase of the pilot is only available to individuals with active FINRA registrations.   Future versions will allow individuals seeking to register, as well as active and termed registered representatives to view their FINRA registration details, schedule exams and update certain registration information.  After you have had an opportunity to create an account and access your continuing education, please provide any feedback related to the Financial Professional Gateway experience, and any suggestions for future enhancements to Jennifer DiValerio at jdivalerio@foreside.com .   
 
We are very excited to be a part of this pilot launch and thank you in advance for your participation and feedback.   
Are you (still) wearing too many hats?
Fund sponsors who have bootstrapped their way from initial registration through to the profitable operation of a mutual fund or ETF will likely appreciate the pressures associated with juggling multiple roles and responsibilities within their organization. In the early days of growing a 1940 act fund business, one or two individuals might be forced to balance the responsibilities of a Portfolio Manager, Chief Operating Officer, Chief Compliance Officer, Treasurer and SOX Certifying Officer, to name a few.


Such an approach might be avoided by well capitalized start-ups, but to a certain degree, all fund sponsors will be laser focused on their bottom line while hoping to prove the viability of their new product's concept. Much as Abraham Maslow suggested in 1943 with his hierarchy of needs pyramid, we all naturally prioritize the meeting of basic needs over achieving all others.

However, as funds surpass their break-even points, sponsors can and should begin to look a bit higher up on Maslow's pyramid, seeking to allow senior team members to focus primarily on their core competencies. Shedding non-core roles can be a shortcut to increased efficiency and will likely be accompanied by significant risk reduction for the organization and for the individual. This process will often include the consideration of outsourced solutions for certain roles previously held internally.

Foreside would be honored to take on one or more of your hats. We offer senior specialists serving in RIA compliance and fund officer roles including Adviser CCOs and consultants, Fund CCOs, Treasurers/SOX Certifying Officers and Fund Secretaries. Our compliance and financial professionals are exposed to multiple advisers and service providers, helping them to form a keen sense of best practice within their areas of expertise. Limited engagement numbers for each team member allow us to offer you a solution which is tailored to your business.

For more information on how Foreside can assist you and your business, please contact Chuck Todd at (207) 553-7125 or ctodd@foreside.com.
M & A Trends
As 2017 beings in earnest, it's always good to look at the various M&A trends that were established in the prior year. 

For 2016, a total of 104 transactions totaling $67 billion in AUM were recorded  for traditional RIAs 1 . 2016 represented a year where both buyers and sellers became increasingly selective in the transactions they entered into. Where large RIAs are acquiring firms, they cited the following areas of concern:
  • A tainted compliance record
  • An aging client base
  • History of limited AUM growth
  • Lack of talent
  • An immediate succession of the advisor2

Additionally, the average AUM size of $700 million in an acquisition highlighted the increasing importance of regional footprints for RIAs looking to expand their b usiness 3 .

In the asset management world, the impetus to acquire came from an attempt to achieve greater scale and to counter continued asset outflows from actively managed funds.  ETF issuers benefited the most in 2016 as buyers chose to aggressively pursue acquisitions as the route to growth, versus building their own ETF operations from the ground up.

Several large transactions occurred in the asset management industry in 2016, as consolidation appears to be a continuing trend into 2017. The top 5 transactions announced in 2016 in the asset management industry are highlighted
below 4:
  • Sale of Trian Fund Management's stake in Legg Mason to the Shanda Group
  • Sale of Pioneer Investments to Amundi SA
  • OM Asset Management's follow-on offering and partial repurchase from Old Mutual PLC
  • Warburg Pincus and General Atlantic's sale of Santander Asset Management SA to Banco Santander
  • Merger between Henderson Group PLC and Janus Capital Group

1Fidelity  2016 Wealth Management M&A Transaction Report
2Fidelity  2016 Wealth Management M&A Transaction Report
3Sandler O'Neill & Partners, Asset Manager Transaction Review & Forecast
4Sandler  O'Neill & Partners, Asset Manager Transaction Review & Forecast


Industry News/Resources
For links to recent industry news, resources, and insightful commentary please click HERE .

Financial Fun Fact
NYSE MKT LLC, formally known as the American Stock Exchange (AMEX) was originally called the New York Curb Market. "The Curb" got the name because of the traders conducting their trading activities out on the streets of New York City.  The Curb maintained it's name until 1953 when it officially changed to the American Stock Exchange.

"New York Curb Market"; Photographer Peter Bond; 2009 
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