Products February 24, 2011

SSgA Launches Two ETFs

The SPDR S&P Emerging Markets Dividend ETF (Symbol: EDIV) and the SPDR Barclays Capital Emerging Markets Local Bond ETF (Symbol: EBND) began trading on the NYSE Arca.
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The SPDR S&P Emerging Markets Dividend ETF is designed to track the performance of the S&P Emerging Markets Dividend Opportunities Index, according to State Street Global Advisors. The index is comprised of 100 of the highest yielding emerging markets stocks, based on market capitalization, in the S&P Dividend Opportunities family of indexes.

Constituents include publicly traded companies with market capitalizations of at least $1 billion (float-adjusted market cap of $300 million). The SPDR S&P Emerging Markets Dividend ETF’s expense ratio is 0.59%.

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The SPDR Barclays Capital Emerging Markets Local Bond ETF is designed to track the price and yield performance of the Barclays Capital EM Local Currency Government Diversified Index. The index includes government bonds issued by countries outside of the United States, in local currencies, that have a remaining maturity of one year or more and are rated B3/B-/B- or higher using the middle of Moody’s Investor Service, Inc., Standard & Poor’s, Inc. and Fitch, Inc. respectively, according to the announcement.

Each of the component securities in the index is a constituent of the Barclays Capital EM Local Currency Government Diversified Index. The SPDR Barclays Capital Emerging Markets Local Bond ETF’s expense ratio is 0.5%.

“Against a backdrop of historically low Treasury yields, demand for precise exposure to innovative debt and dividend instruments is climbing,” said James Ross, senior managing director and global head of SPDR Exchange Traded Funds at SSgA.

In Practice February 24, 2011

Schwab Finds Hybrid Practices Growing in Popularity

A report from Charles Schwab evaluates the pros and cons of combining a traditional brokerage business and fee-based advisory business.
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The report, “Understanding the Hybrid Practice – Considerations for Advisors in Transition,” said there are two models for a hybrid practice–the ‘semi-captive’ model, in which an adviser joins a corporate registered investment adviser (RIA) of an independent broker/dealer and the ‘dually registered’ model, in which an adviser starts or joins an independent RIA. The report focuses on trends driving growth in the hybrid market segment, strategic considerations of choosing a hybrid practice model, and the economics of being a hybrid adviser, according to Schwab. 

In 2010, Schwab Advisor Services saw 163 advisory teams transition to independence, representing $12.6 billion in assets under management. A growing number of advisers in transition to the independent RIA model are coming from the independent B/D channel as they seek greater flexibility, the report noted. Schwab saw a 45% increase in the number of teams transitioning to independence from B/D firms in 2010 compared to 2009.

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The report includes interviews from advisers who have transitioned to a hybrid model. Some of their reasons for doing so include:

  • A broader set of offerings for clients with differing needs, such as clients in an asset de-accumulation phase with more need for guaranteed income products
  • An expanded selection of alternative investments, structured products, and private placements
  • Access to different client segments such as corporate retirement plans that need brokerage products
  • Preservation of income streams from legacy brokerage business
  • Flexibility of products and services provided to clients in a rapidly changing industry
  • Ability to grow by attracting other hybrid advisers in transition to join their firm

The report also discusses five key areas of an adviser’s practice that should be considered before making any changes to a business model:

  • Overall business objectives and value proposition – What is the firm’s mission and philosophy and who are the core clients it will serve?
  • Investment philosophy – What kind of investment products does the firm need to provide in order to execute its investment philosophy and serve its clients’ needs?
  • Infrastructure and systems – What are the firm’s needs in terms of systems and technology, such as CRM, performance reporting, asset allocation, rebalancing, trade order management, and data input and reconciliation?
  • Compliance and regulation – Based on the hybrid model the adviser chooses, how will the firm be regulated? Independent RIAs are currently regulated by the Securities and Exchange Commission (SEC) or states, while IBD advisers are currently regulated by FINRA with the SEC and states having some regulatory jurisdiction.
  • Firm economics – What are the adviser’s needs and preferences around equity ownership; income preservation, income mix and income goals; and the level of personal time and effort to meet business goals?

The hybrid report is the latest publication in the Schwab Market Knowledge Tools series, an ongoing program of industry research reports, white papers, and guides.

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