Steve Cook on Impact of DOL Rule (Audio)

symposium in Data Point, California. Stephen Cook, thank you very much for being here. Thanks for having me. It's great to be back. All right, So just define what are the new rules from the Department of Labor and how do you think that they are going to affect the

role of exchange traded funds in the portfolios. Well, the d o LL conflict of interest rules are basically setting forth a platform or guidance that states that in advisor who's advising a client on retirement assets for one K assets are required to put the interest of the investor

the client first. Uh. And so the thought is that traditional broker dealers who may have in the past um made decisions and other factors are really going to be required in everything they do to put the client interests first, and so it's going to force them to look at

things differently. Fees that clients pay for their exposure UM, how they go about gaining certain exposures in an asset allocation model, and the appropriateness for that client to be in specific products, and so the structure of et s because they tend to be low cost, because they're transparent and everybody understands clearly what they own, are really going to benefit from these new rules as they've been written. That's very interesting. Um So, who will benefit most from that? Well,

I think a number of individuals. First. Obviously investor hopefully will benefit UM you and I as we invest in our foreign K platform, but certainly the t F issuers are going to benefit that long term in terms of drawing assets. We did a study with approximately a hundred and seventy investment advisors and what came back is that the large percentage of those investment advisors are going to start recommending at a much higher percentage e T s to be a larger UH investment for their clients than

other potential products that's in the past. So For instance, if an advisor had had twenty three percent of clients assets and e tps in the past, moving forward, they're going to look to increase at allocation to so increase and net new assets flowing into e t f s over what you've seen previously. Why would that happen? Is it because uh, E t f s are perceived as being less risky. I mean they there's no real sort of definition of well, they're less sky, they're more risky.

I mean, it really depends on what you've selected. And if that's the case, is it that money managers and asked that allocators they're going to just go with what they believe to be safe because number one, they don't want to be suited and number two, they don't want to be put out of business by the Department of Labor. It's not necessarily about safety. It's about utilizing the best

building blocks for an esset allocation model. And in the past many have thought that might be actively managed funds. They're trying to beat the market, they're trying to have their clients overall performance outperformed what they could get from the index fund. But I think if you look historically, we've seen trends that managers are not able to outperform markets,

and you're paying quite a bit for that management. So if you have an actively managed mutual fund, they might be charging a hundred and twenty basis points or a hundred and fifty basis points. If you can get an e t F that tracks an index that actually outperforms those actively managed funds and does so at a cost of seven to eight to nine basis points, you're talking a huge opposite. But in Jack Bogle we're here, you know, legendary founder ban Card, he'd say, so why just buy

an index fund? Why do you need to get an e t F. Certainly some optionality exists there, but I think if you look at the e t F s uh, they're much more tax efficient. Doesn't necessarily always help in a tax advantage asset class like an r RA A or four one K, but the ability to draw assets, have them exist alongside taxable investments and non taxable investments and get the benefits of the structural efficiencies that exists in e t F. It's just cheaper to put in

E t F together than as a mutual fund. It's cheaper to have one ongoing operated and so the cost efficiency associated with that, along with the tax efficiency really puts investors in advantage in a long term and allows advisors to really benefit or adhere to the d o L rules and the spirit of them and really give

their clients the best access. In another area, if you look, the structure allows itself to be include of commodities of other asset classes that may not be as correlated to the overall market, and because it naturally fits with those types of asset classes, it gives advisors a lot more in the way of choice as to how to go

ahead and manage their client's portfolios. Just last point, If that's the case, does that not mean that the registered rep or the money manager is going to have an even more challenging time because now you've opened up the menu to include all these different types of ETFs, they

are going to have a more challenging time. And it's really gonna be on the issuers of e T S and the industry at large, folks like bny Mellen to help the marketplace, to help advisors understand these products and to help them help adopt them into their client's portfolio.

So you're going to have to see the need for issuers for the et F industry to really educate, not just for folks who have already been buying E t F for the last ten years, but really the new folks who are gonna have to adopt them as a part of this d O L standards. So you are going to see the need for a lot more education, a lot more understanding in the marketplace. Alright, Well, understanding the marketplace always useful. Steve Cook, thanks for joining us.

Thanks for having me, folks, it was great to be here. He's managing director and business executive for Structure Product Services being White Melton Asset Servicing, and we've had a terrific time today at et F Exchange sixteen Ideas Innovation Interaction being Why Melton's annual conference here in Dana Point, California. I'm Kathleen Hayes along with Pim Fox, and this is Boomberg.