Advisors Turn to ETF Managers. Growing Assets and Increasing Client Value

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1 Advisors Turn to ETF Managers Growing Assets and Increasing Client Value

2 Advisor partnerships with ETF managers are on the rise ishares has tracked an increased number of advisors partnering with ETF managers. In 2008, ishares published the ishares ETF Managed Solutions Guide to help advisors assess asset managers who are providing innovative ETF investment solutions. In two years, the number of assets being managed by the ETF managers in the guide grew by 380%, representing $28 billion in total ETF assets. 1 In 2011, the number of asset managers focusing on ETF model portfolios continues to grow. 1. Source: ishares ETF Managed Solutions Guide, December 2008 December 2010.

3 Advisors Turn to ETF Managers ishares identifies opportunity to bring advisors and ETF managers together ishares has been long committed to partnering with financial advisors to help them meet their clients goals and find innovative ways to grow their businesses. As the global leader managing the most exchange traded fund (ETF) assets across the industry, ishares has a special view into how ETFs are being used to meet a variety of different investment objectives. We ve identified an opportunity to bring advisors and ETF managers together to deliver on a common goal: provide clients with exceptional ETF solutions to meet their diverse needs. Highlights: Demands on advisors are mounting and they must find innovative ways to allow more time to service and grow their client base. Delegating a portion of investment responsibilities frees up time for advisors to focus on business development. More advisors are leveraging the expertise of ETF managers as a cost-efficient and scalable way to gain exposure to ETFs. Investors benefit from having access to ETF experts with a proven track record and institutional-powered portfolios. Keys to growth: Client servicing and business development Successful financial advisors are learning that a sharper focus on client relationships, the cornerstone of an advisor s practice, is pivotal to a growing business. Yet, there are many other business demands that detract attention away from the client, putting advisors at risk for losing business and stunting growth. Advisors are challenged to find innovative ways to meet client demands while still planning for growth, driving efficiencies and maintaining smooth business operations. And as the growing number of advisors increases competitive pressures, this becomes even more important. On average in 2010, new advisors entered the market each month. 2 As the industry evolves, more advisors are turning to ETF managers to access model ETF portfolios as part of a scalable and differentiated growth strategy. They are discovering that ETF managers can help decrease time spent on portfolio construction and maintenance, leading to more time building client relationships a key growth driver. The increased use of ETFs paves the way for ETF specialists Exchange traded funds have captured the attention of investors and advisors alike, primarily for their low costs, transparency and tax efficiency. It s not surprising that advisors are beginning to allocate a larger percentage of assets to ETFs within their clients portfolios. They recognize that ETFs can be an effective way to gain exposure to alternatives, non-us asset classes and sectors; and help implement a core-satellite strategy. 3 The growing popularity of ETFs has given rise to a new niche of asset managers that bring a special expertise and deep knowledge of ETF portfolio construction and trading. ETF managers are third-party managers who utilize ETFs in their practice at virtually every stage in the investment process, from building complete asset allocation models to executing tactical strategies. Figure 1: Top growth enablers for advisors Maintaining quality client service and growth Closing new business 74% 77% Delivering investment returns Implementing technology Adapting operations for efficiency Providing access to investment opportunities 68% 65% 62% 58% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: Insights from the 2010 RIA Benchmarking Study from Charles Schwab. 2. Source: RIA Database. 3. Source: The Cerulli Edge U.S. Asset Management Edition, March 2011.

4 This is good news for advisors that want to bring their clients the benefits of ETFs, but don t have in-house specialists to navigate the global ETF market consisting of more than 2,700 ETFs. 4 The benefits of partnering with ETF managers More time with clients and on business development Advisors planning for growth must balance time for business development, long-term marketing efforts and a commitment to superior client servicing. Delegating a portion of investment responsibilities frees up time for advisors to focus on clients. Added client value Because the market to enter and exit ETFs is different from other investment vehicles, those who don t understand it may be putting clients at a disadvantage. Practical example: Time savings For many advisors, investment manager research, portfolio construction and portfolio monitoring is consuming the equivalent of two workdays a week translating to 40% of time per week. And as the firm grows in AUM, so does the time spent. 5 By simply outsourcing 50% of these investment management related tasks, an advisor can dedicate an extra day each week to meeting with existing and new clients. To be conservative, this could translate to 4 6 additional hours with clients each week, or meetings over the course of a year. Imagine the revenue impact this could provide. Figure 2: Global ETF and ETP asset growth 1,600 3,000 1,400 1,200 2,000 Assets (US $B) 1, ,500 1,000 Number of Products Assets (US $B) /11 ETF total $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.3 $104.8 $141.6 $212.0 $309.8 $412.1 $565.6 $796.7 $711.1 $1,036.0 $1,311.3 $1,446.6 ETF equity $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.3 $104.7 $137.5 $205.9 $286.3 $389.6 $526.5 $729.9 $596.4 $841.6 $1,053.8 $1,157.8 ETF fixed income $0.1 $0.1 $4.0 $5.8 $23.1 $21.3 $35.8 $59.9 $104.0 $167.0 $207.3 $228.5 ETF commodity $0.0 $0.1 $0.3 $0.5 $1.2 $3.4 $6.3 $10.0 $25.6 $45.7 $54.3 ETP total $2.0 $5.1 $3.9 $4.1 $6.3 $9.3 $15.9 $32.5 $54.6 $61.2 $119.7 $171.3 $190.2 # ETFs ,170 1,595 1,944 2,460 2,747 # ETPs ,083 1,158 Sources: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg. Data as of 5/ Sources: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg. Data as of 5/ Source: Outsourcing Asset Management Capability: The Firm s That Opt Not To And Why, June 2010.

5 ishares ETF managers are unique. These firms have made a business out of understanding the intricacies of ETF structures, how they trade, how to employ ETFs in portfolios to help meet various investment objectives and how clients may be able to utilize them for tax savings. Advisors are increasingly partnering with ETF managers in order to offer clients institutional-like portfolios and product innovations that they otherwise may not be able to access. Many ETF managers also have fiduciary responsibilities as independent, fee-based Registered Investment Advisors, offering greater peace of mind and value to advisors and their clients. We specialize in understanding the needs of our clients and they trust that we will find the investment solution that best meets their objectives. We strive to match our clients needs to an ETF manager with the expertise and track record to drive results. David Carmichael, President and cofounder of Rowland Carmichael Advisors Inc. Flexibility and choice Historically, advisors have been reluctant to place investment management responsibilities in another s hands, especially if it is considered core to their value proposition. However, leveraging the expertise of ETF managers is not an all-or-nothing proposition. It s important to realize that advisors are in full charge of their client s financial plans, but have the added benefit of being backed by a team of specialists. Advisors are able to do what they do best work with clients to define their investment objectives while the ETF manager takes on the day-to-day research, trading and operations. The ETF managers credibility and track record can help attract the attention of wealthy clients with large portfolios. The access to a transparent manager selection and termination process also affords greater flexibility for the advisor. Advisors who may gain from working with ETF managers Advisors must identify where they add the most client value and capitalize on those strengths as a firm. For other areas, there may be room to develop, and outsourcing ETF portfolio management to an expert is an avenue to explore. Leveraging the expertise of an ETF manager may benefit you and your practice if: Your strength is in holistic financial planning and wealth management, versus building and managing portfolios. Investment management and research is consuming a greater percentage of time and resources, at the expense of client relationships and business development. You don t have the internal resources to manage the increasing complexity and time demands of ETF portfolio construction, monitoring and rebalancing. Your clients need a level of asset diversification difficult to achieve using internal resources. Your firm requires more expertise in ETF structures, trading and tax treatment. Figure 3: Advisor challenges pulled in multiple directions Marketing Revenue Generating Marketing and sales New business acquisition Determining objectives Servicing/education Reporting and Operations Advisor Client Services Overhead Expense Asset allocation Manager selection Monitoring managers Portfolio rebalancing Reporting and operations Asset Management Investment activities represent the second largest demand on advisors time* * Source: College for Financial Planning s 2009 Survey of Trends in the Financial Planning Industry.

6 To learn more about the benefits of working with an ETF manager, please contact ishares at is Carefully consider the ishares Funds investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds prospectuses, which may be obtained by calling iShares ( ) or by visiting Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. ETFs are obliged to distribute portfolio gains to shareholders. The ishares Funds ( Funds ) are distributed by SEI Investments Distribution Co. ( SEI ). BlackRock Fund Advisors ( BFA ) serves as the investment advisor to the Funds. BFA is a subsidiary of BlackRock Institutional Trust Company, N.A., neither of which is affiliated with SEI. Neither SEI, and its affiliates, nor BlackRock Institutional Trust Company, N.A., and its affiliates, are affiliated with Rowland Carmichael Advisors Inc BlackRock Institutional Trust Company, N.A. All rights reserved. ishares is a registered trademark of BlackRock Institutional Trust Company, N.A. BlackRock is a registered trademark of BlackRock, Inc. All other trademarks, servicemarks or registered trademarks are the property of their respective owners JY-7/11 FOR FINANCIAL PROFESSIONAL USE ONLY NOT FOR PUBLIC DISTRIBUTION Not FDIC Insured No Bank Guarantee May Lose Value