WEBVTT - How First Trust Became a Quiet Force in ETFs 0:00:05.519 --> 0:00:06.200 Boking on trillions. 0:00:06.200 --> 0:00:11.600 I'm Joel Webber and I'm Eric Belchunis. 0:00:12.520 --> 0:00:12.719 Eric. 0:00:12.800 --> 0:00:15.800 You know something that you know about is steak dinners. 0:00:15.960 --> 0:00:17.920 You like to make a lot of bets that involve 0:00:17.960 --> 0:00:18.680 steak dinners. 0:00:19.239 --> 0:00:20.200 We have enough whole. 0:00:20.000 --> 0:00:22.760 Episode that is more or less about the steak dinner, 0:00:22.800 --> 0:00:24.640 only it's a different type of steak dinner. 0:00:25.000 --> 0:00:25.239 Yeah. 0:00:25.280 --> 0:00:30.040 Look, I mean in the funds business, for decades, there 0:00:30.160 --> 0:00:33.240 was you know, beating the market. There was low fees, 0:00:33.280 --> 0:00:36.040 and there was relationships. You know, for a long time 0:00:36.080 --> 0:00:38.199 they had loads where you literally paid a broker to 0:00:38.200 --> 0:00:40.920 put the client's money in the fund, and over the 0:00:41.000 --> 0:00:44.680 years that became like seemingly expensive. But the idea of 0:00:44.760 --> 0:00:49.280 having relationships and whining and dining advisors and investors is 0:00:50.360 --> 0:00:53.120 one of the ways that you can actually sidestep the 0:00:53.159 --> 0:00:56.400 Vanguard effect. And you know, no firm does it better 0:00:56.440 --> 0:00:58.080 than First Trust. There's a couple to do it, but 0:00:58.120 --> 0:01:00.480 I think First Trust is probably the best us at it. 0:01:01.480 --> 0:01:05.400 And they're the sixth biggest etfi Shure despite not really 0:01:05.440 --> 0:01:07.360 playing Vanguard's game, which. 0:01:07.160 --> 0:01:10.040 Is always of interest to us, as is the story 0:01:10.200 --> 0:01:13.080 that we're going to talk about on this episode, which 0:01:13.120 --> 0:01:18.320 cat our I about First Trust by Emily Graffeo and 0:01:18.480 --> 0:01:23.399 Max Abelson by Bloomberg BusinessWeek. So joining us in this episode, 0:01:23.560 --> 0:01:27.240 we've got Emily Graffeo, a cross asset reporder for Bloomberg News, 0:01:27.319 --> 0:01:31.440 as well as Max Abelson, a finance reporter here at Bloomberg, 0:01:34.400 --> 0:01:41.120 this time on trillions First Trust. Emily, Max, Welcome to Trillions. 0:01:41.400 --> 0:01:42.360 That's an honor to be here. 0:01:42.800 --> 0:01:43.679 Thanks for having us. 0:01:43.720 --> 0:01:47.600 Okay, Emily, you report on ETFs among other things. I'm 0:01:47.640 --> 0:01:51.760 curious how much you knew about First Trust before you 0:01:51.800 --> 0:01:53.480 started working on this on this story. 0:01:54.720 --> 0:01:57.560 Well, what I knew about First Trust before I started 0:01:57.600 --> 0:02:02.040 working was I just looked at the data of comparing 0:02:02.080 --> 0:02:07.360 the largest ETF issuers and then their average expense ratios. 0:02:07.480 --> 0:02:10.320 So I knew that First Trust was the sixth largest issuer. 0:02:10.800 --> 0:02:13.760 I knew that they somewhat stayed under the radar. You 0:02:13.800 --> 0:02:17.960 go to ETF conferences, I never really noticed they were there. 0:02:17.960 --> 0:02:19.840 A lot of the other issuers have like big booths 0:02:19.919 --> 0:02:23.480 at these conferences. First Trust seemed to me to almost 0:02:23.600 --> 0:02:26.680 just stay in their own lane. They didn't market much 0:02:26.720 --> 0:02:29.959 to retail. You never really see a First Trust commercial 0:02:30.080 --> 0:02:33.280 like you do with some of these other issuers like 0:02:33.320 --> 0:02:36.920 an Invesco qqq AD, and so I knew that they 0:02:36.960 --> 0:02:40.639 were big. I knew that they were almost you could 0:02:40.639 --> 0:02:43.560 call them quiet, and I knew that their average expense 0:02:43.680 --> 0:02:47.800 ratio was much higher than the top competitors when you 0:02:47.840 --> 0:02:51.679 look at the league table. And Bloomberg Intelligence actually had 0:02:51.720 --> 0:02:55.160 this report out estimating that they make almost as much 0:02:55.240 --> 0:03:00.800 revenue selling ETFs as Vanguard, but they're like fifteen times smaller. 0:03:01.240 --> 0:03:06.160 So that data almost anomaly, jumped out to me, and 0:03:06.200 --> 0:03:08.799 it was something that I know Bloomberg Intelligence had done 0:03:08.960 --> 0:03:11.320 a number of research reports on. 0:03:11.480 --> 0:03:15.680 So a quiet but lucrative business model. It's also privately held. 0:03:16.160 --> 0:03:19.680 Jim Bowen is sort of the person in charge there, right, 0:03:19.720 --> 0:03:21.880 He's put together a little quiet empire. What do you 0:03:21.960 --> 0:03:24.760 know about Jim now that you've worked on the story. 0:03:25.760 --> 0:03:29.120 So, Jim Bowen has been at the helm of First 0:03:29.120 --> 0:03:34.760 Trust almost since the beginning. He became the CEO of 0:03:34.800 --> 0:03:38.640 the company pretty soon after the company started. 0:03:38.640 --> 0:03:42.760 You know, in like White House presidential elections there. I 0:03:42.800 --> 0:03:44.680 don't think people talk about it anymore, but there was 0:03:44.680 --> 0:03:46.480 that old thing about like do you want to have 0:03:46.560 --> 0:03:50.560 a beer with them? You know, as a Wall Share reporter, here. 0:03:50.600 --> 0:03:52.680 There's so many people who I write about who I 0:03:52.720 --> 0:03:55.040 would really not want to have a beer with. One 0:03:55.040 --> 0:03:56.480 thing I want to say about Jim Bowen is like, 0:03:56.480 --> 0:03:58.440 I would definitely have a beer with that guy. He 0:03:58.560 --> 0:04:04.240 seems very charismatic. He seems very proud of what he does. 0:04:04.520 --> 0:04:07.880 He seems to sort of cherish it. And his enthusiasm 0:04:07.920 --> 0:04:10.960 for his job made made my job easier because it 0:04:11.000 --> 0:04:13.640 was fun to sort of behold someone and to chronicle 0:04:13.720 --> 0:04:16.880 someone who gets so worked up about what they do. 0:04:16.960 --> 0:04:19.680 So many people are like bored or just boring and 0:04:19.800 --> 0:04:24.480 he and he's neither. He exudes this this confidence and 0:04:24.920 --> 0:04:28.040 this sense of honor in what First trust does we 0:04:28.160 --> 0:04:31.400 help the financial advisor because the financial advisor helps the 0:04:31.440 --> 0:04:34.120 client and we love that. And I was it was 0:04:34.120 --> 0:04:36.880 fun fun for me to understand when he meant and 0:04:36.960 --> 0:04:39.360 to and and to like even do something as simple 0:04:39.360 --> 0:04:41.000 as like watching his speeches on YouTube. 0:04:41.200 --> 0:04:44.600 Also worth mentioning that he did not participate or neither 0:04:44.600 --> 0:04:48.360 did First Trust in the story, So Emily break down 0:04:48.360 --> 0:04:51.080 a little bit about what you've learned about how the 0:04:51.120 --> 0:04:54.360 first trust model works and how that's different than sort 0:04:54.400 --> 0:04:57.279 of maybe the rest of what has become the prevailing 0:04:57.560 --> 0:05:00.240 model in the in the ETF. 0:04:59.800 --> 0:05:05.360 And right, so first trust sells their funds. They pitch 0:05:05.440 --> 0:05:10.640 their funds directly to financial advisors who then by select 0:05:10.680 --> 0:05:15.000 the funds for their end clients. Which we're aware that 0:05:15.040 --> 0:05:19.360 a number of firms in the ETF industry do that, 0:05:19.720 --> 0:05:25.120 but their distribution model really stands out. They have what 0:05:25.160 --> 0:05:28.359 they call wholesalers, which are essentially salespeople that pitch the 0:05:28.400 --> 0:05:32.200 funds to the financial advisors. They have wholesalers all over 0:05:32.360 --> 0:05:37.359 the country who are assigned to small territories, think like 0:05:37.720 --> 0:05:41.080 just you know, one part of the southern US, to 0:05:41.160 --> 0:05:46.360 go out to financial advisors and pitch these funds. A 0:05:46.360 --> 0:05:52.160 lot of ETF companies from at least from my reporting, 0:05:52.560 --> 0:05:55.279 you know, they'll have a wholesaler who maybe sells both 0:05:55.640 --> 0:05:59.040 mutual funds and ETFs, or they'll have a relatively small 0:05:59.120 --> 0:06:04.800 team not really pushing the ETFs onto the financial advisors. 0:06:05.200 --> 0:06:08.279 One reason is because there's this saying, as I'm sure 0:06:08.279 --> 0:06:11.040 you guys know, in the ETF world, ETFs are bought, 0:06:11.200 --> 0:06:16.440 not sold, so their lower fee that's really where the 0:06:16.480 --> 0:06:20.120 industry kind of competes. They have a lower fee fund. 0:06:20.279 --> 0:06:22.800 You mark it to a retail investor. A retail investor 0:06:22.920 --> 0:06:26.920 just wants to buy the cheapest fund out there. First 0:06:26.920 --> 0:06:30.320 trust is different. They don't really play that that low 0:06:30.440 --> 0:06:34.880 fee game. Instead, what they're doing is having these financial 0:06:34.920 --> 0:06:39.480 advisors who, from what I understand, are extremely knowledgeable. They 0:06:39.560 --> 0:06:42.160 pick up the phone when you have a question. If 0:06:42.160 --> 0:06:46.440 you're a financial advisor, they're there for you throughout the 0:06:46.520 --> 0:06:51.400 journey of owning this fund. And that's what we know 0:06:51.400 --> 0:06:53.960 about how their I guess distribution model is a little 0:06:53.960 --> 0:06:56.520 bit different from these other ETF companies. 0:06:57.000 --> 0:06:59.279 Eric, when you break down sort of how that model 0:06:59.520 --> 0:07:04.000 works and what's in it for advisors who are getting 0:07:04.000 --> 0:07:06.040 pitched on products, how does that all fit together. This 0:07:06.360 --> 0:07:08.000 is the side of the industry that we actually don't 0:07:08.040 --> 0:07:09.800 talk about that much on the on the show. 0:07:10.200 --> 0:07:14.600 Yeah, so advisors managed like forty trillion dollars of people's 0:07:14.600 --> 0:07:16.400 money in America. That's a lot of money. They're the 0:07:16.440 --> 0:07:19.280 gatekeepers of all that money. So of course they're getting 0:07:19.280 --> 0:07:21.680 pitched to constantly. Like if you're an advisor and you 0:07:21.680 --> 0:07:23.560 go to an ETF conference, you're like a rock star. 0:07:24.280 --> 0:07:29.280 Basically everybody wants to, you know, sell to rockstar, not 0:07:29.440 --> 0:07:31.600 like no, okay, well, Richard. 0:07:31.440 --> 0:07:33.880 Key Erk is pretty famous at these conferences. If you 0:07:33.920 --> 0:07:36.760 walk with him at a conference, you can't walk. 0:07:37.240 --> 0:07:40.880 So I will get pitched for media attention, but I'm sorry. 0:07:40.960 --> 0:07:44.080 Media attention is under asset allocation. Okay, So I know 0:07:44.120 --> 0:07:48.960 my place. So these advisors rias up to big advisors 0:07:49.200 --> 0:07:52.080 are really the sort of bell of the ball at 0:07:52.080 --> 0:07:55.360 these conferences, and a lot of them now the sales, 0:07:55.600 --> 0:07:57.240 they don't really want to take calls. I mean, they're 0:07:57.280 --> 0:08:00.240 harder to sell to than ever. They don't have loads anymore, 0:08:00.600 --> 0:08:02.840 and so I think first load, by the way, a 0:08:02.880 --> 0:08:05.160 load again is what I said earlier, which is where 0:08:06.360 --> 0:08:08.280 the fund has like a let's say four point seventy 0:08:08.320 --> 0:08:12.640 five percent load, where let's say it's a blank, blank fund. 0:08:13.680 --> 0:08:16.240 I would then the client would pay four point seventy 0:08:16.240 --> 0:08:18.280 five percent of their ore their own money that I 0:08:18.320 --> 0:08:21.760 would get the broker just for the luxury of putting 0:08:21.840 --> 0:08:23.400 you in this probably crap fund. 0:08:23.480 --> 0:08:24.080 Handler feet. 0:08:24.160 --> 0:08:26.640 Yeah, the whole mutual fund industry was built that way. 0:08:26.720 --> 0:08:29.720 It's almost like a bribe, and there's so much money 0:08:29.800 --> 0:08:32.800 sitting in bad funds because of it. Now, first trust 0:08:32.880 --> 0:08:34.520 is a little bit of a throwback, but they don't 0:08:34.520 --> 0:08:37.800 do that. That is really seventy five percent. Takes a 0:08:37.800 --> 0:08:41.040 long time to overcome that in performance, and the funds 0:08:41.120 --> 0:08:43.320 that they were putting those loads on were usually over 0:08:43.360 --> 0:08:46.559 one percent of an expense ratio plus one percent trading fees. 0:08:46.880 --> 0:08:48.959 Add it up and the investors barely get any of 0:08:49.000 --> 0:08:51.520 the returns over thirty years. This is what Bogel and 0:08:51.600 --> 0:08:54.320 Vanguard fought against. Now First Trust is a little bit 0:08:54.360 --> 0:08:56.600 of a throwback, but they still are in the ETF business. 0:08:56.920 --> 0:09:00.400 Their funds are, you know, forty eight to seven five 0:09:00.440 --> 0:09:03.559 basis points, so they're definitely more expensive. The asset waight 0:09:03.600 --> 0:09:07.480 to average vvtfs is eighteen basis points, so they're above that. 0:09:07.640 --> 0:09:10.079 But they aren't beta like. These are funds trying to 0:09:10.120 --> 0:09:13.520 outperform a little bit. They've got smart, beta active, they 0:09:13.559 --> 0:09:16.240 do a lot of strategies a little different, and I 0:09:16.240 --> 0:09:19.160 guess their pitch to the advisor is, look, you could 0:09:19.160 --> 0:09:21.240 do a Vanguard fund, but you do ours and you 0:09:21.280 --> 0:09:25.480 can have a chance to outperform. We're not that expensive, 0:09:26.360 --> 0:09:28.680 and you know you like us. I mean, and I 0:09:28.679 --> 0:09:30.880 think part of the winding and dining is that just 0:09:30.920 --> 0:09:33.640 to tap that. So we wrote a We were fascinated 0:09:33.679 --> 0:09:35.480 by this. And you know, we wrote a piece I 0:09:35.520 --> 0:09:37.880 don't know, a couple of years ago trying to explain 0:09:37.960 --> 0:09:40.640 where all flows come from, and we rarely got it 0:09:40.640 --> 0:09:44.360 down to the three c's, which is cheap, creative or cabernet, 0:09:44.920 --> 0:09:47.480 and we you know, and I'm not judging it. This 0:09:47.640 --> 0:09:50.480 is part of how funds and anything is sold. Like 0:09:50.720 --> 0:09:53.080 if you're in politics and you want another country to 0:09:53.080 --> 0:09:54.959 do something for you, you're gonna have a dinner with them, 0:09:55.160 --> 0:09:57.600 You're gonna go golfing. Like it's pretty much just an 0:09:57.600 --> 0:10:00.000 old school attempt. Now, a lot of the new issuers 0:10:00.080 --> 0:10:02.800 what their move now is to do educational stuff like 0:10:02.880 --> 0:10:05.040 blog posts and they have podcasts. It's more of like 0:10:05.080 --> 0:10:07.760 a soft cell. I think First Trust is just a 0:10:07.760 --> 0:10:09.560 little more of the old guard in terms of how 0:10:09.600 --> 0:10:16.280 they're selling their products. 0:10:18.040 --> 0:10:21.720 Here we are first Trust, we know is wielding steak dinners. 0:10:21.920 --> 0:10:24.640 How is that influencing their business strategy? 0:10:24.679 --> 0:10:26.560 Machs All right, well, let me just say something about 0:10:26.559 --> 0:10:28.439 steak dinners. Besides the fact that every now and then 0:10:28.480 --> 0:10:30.760 I myself enjoy a good steak dinner. 0:10:30.480 --> 0:10:32.560 I probably owe you several actually. 0:10:32.240 --> 0:10:33.240 Actually technically you do. 0:10:33.280 --> 0:10:35.680 Omi. Thank you for bringing that up. Okay, you know, 0:10:35.840 --> 0:10:36.480 there is. 0:10:36.440 --> 0:10:38.840 Nothing wrong with us steak dinner, and in fact, there's 0:10:38.880 --> 0:10:41.040 nothing unusual about a steak dinner and finance. It would 0:10:41.040 --> 0:10:44.640 be really hard to try to find pieces of serious 0:10:44.679 --> 0:10:48.080 business on Wall Street and in financial capitalism that does 0:10:48.120 --> 0:10:52.280 not involve steak dinners of some kind. What is interesting 0:10:52.600 --> 0:10:57.480 and newsworthy about First Trust, according to emails we reviewed 0:10:57.679 --> 0:11:03.920 and interviews we did, is that, in order to win business, 0:11:04.200 --> 0:11:08.480 First Trust has gone up to the line that's allowed 0:11:08.679 --> 0:11:12.160 by the financial industry self regulatory arm, which is called Finra, 0:11:12.960 --> 0:11:17.600 and potentially cross that line because what the industry will 0:11:17.640 --> 0:11:20.040 not let you do, Joel, If I'm the first dress 0:11:20.040 --> 0:11:23.520 wholesaler and you're the financial advisor, I can't take you 0:11:23.600 --> 0:11:26.880 out to use a real example, a three hundred dollars 0:11:27.080 --> 0:11:29.800 hockey game and also three hundred dollars of food. On 0:11:29.880 --> 0:11:33.360 top of that, I can't drop off a really nice 0:11:33.360 --> 0:11:37.520 meal for you and then and then bounce. I can't 0:11:37.960 --> 0:11:42.240 take you out for what what would go beyond what 0:11:42.320 --> 0:11:47.000 the industry calls sort of Emily, what are those great words? 0:11:47.800 --> 0:11:49.000 It can't be neither. 0:11:49.000 --> 0:11:51.319 Extensive, frequent or extensive. 0:11:51.400 --> 0:11:53.760 Can't be too frequent, and it can't be too extensive 0:11:53.800 --> 0:11:54.560 and that makes sense. 0:11:54.600 --> 0:11:56.560 Boy, that's a hazy line, though, you know, I. 0:11:56.559 --> 0:11:58.720 Think that's actually a really fair point that what we're 0:11:58.720 --> 0:12:01.480 talking about in the story. This is not a story 0:12:01.520 --> 0:12:06.120 of bright lines and obvious tomfoolery. This is a story 0:12:06.160 --> 0:12:09.480 about about a gray area that the industry itself does 0:12:09.520 --> 0:12:13.679 not say, Eric, you can do this up to X 0:12:13.720 --> 0:12:15.960 plus eighty one, but if you do X plus eighty two, 0:12:16.280 --> 0:12:19.600 that's a problem. There is a certain kind of fog 0:12:19.880 --> 0:12:23.640 or haziness in the industry. And this story is not 0:12:23.679 --> 0:12:27.760 a story about First Trust, you know, doing anything that's 0:12:27.800 --> 0:12:30.760 like as we say, it's not like we it's about 0:12:30.800 --> 0:12:33.440 buying a freezer full of steak. It's about the ways 0:12:33.480 --> 0:12:36.040 that First Trust, by its own account, according to one 0:12:36.040 --> 0:12:40.280 email we have, may have been getting up to that 0:12:40.360 --> 0:12:42.800 line or maybe potentially crossing it. And of course, of 0:12:42.840 --> 0:12:45.520 course we do have one email where a guy is saying, listen, 0:12:45.559 --> 0:12:48.719 pay to play is illegal, and you all are doing it. 0:12:48.840 --> 0:12:52.360 So to the extent that there are some lines. Pay 0:12:52.360 --> 0:12:54.920 to play is a clear line, and according to this 0:12:54.960 --> 0:12:57.240 one email, it was potentially being crossed. 0:12:57.520 --> 0:13:02.040 Emily Finra is the regulatory agency that oversees a lot 0:13:02.040 --> 0:13:05.000 of this stuff. There's also an investigation into First Trust 0:13:05.000 --> 0:13:06.720 that you all report on. What do we know about 0:13:06.800 --> 0:13:08.319 that investigation. 0:13:09.080 --> 0:13:12.680 Well, we know that the investigation is still ongoing as 0:13:12.720 --> 0:13:15.679 of right now, and it's been going on for at 0:13:15.760 --> 0:13:18.960 least a year now that FINRA has been looking into 0:13:19.600 --> 0:13:25.440 First Trust sales practices. So we don't know that many details, 0:13:25.520 --> 0:13:29.160 but we do know that there is an investigation. It's 0:13:29.160 --> 0:13:33.800 been going on for quite some time, and it's a 0:13:33.800 --> 0:13:38.200 little open ended what will come of the investigation. We 0:13:38.280 --> 0:13:41.720 know that when it comes to pay to play, FINRA 0:13:41.920 --> 0:13:47.760 hasn't really they haven't really leavied much fines on other firms. 0:13:47.800 --> 0:13:52.320 There's not much precedence for, you know, a press release 0:13:52.360 --> 0:13:55.439 coming out that FINRA has investigated a company and they 0:13:55.600 --> 0:13:59.640 found instances of pay to play or instances of winding 0:13:59.640 --> 0:14:02.320 and dying that cross the line of what they would 0:14:02.320 --> 0:14:03.560 deem acceptable. 0:14:03.640 --> 0:14:05.640 One of the things I noticed about covering First Trust, 0:14:05.640 --> 0:14:08.720 also besides some of the you know, interesting stories and 0:14:08.880 --> 0:14:12.960 their sort of relationship, you know, a sort of relationship 0:14:13.320 --> 0:14:17.080 sales tactics, is that they cover a part of the 0:14:17.080 --> 0:14:19.240 country that a lot of times gets left behind and 0:14:19.320 --> 0:14:21.840 not focused on. And I think you mentioned in your story, 0:14:21.840 --> 0:14:24.480 because I've always found that they really speak to the 0:14:24.520 --> 0:14:27.720 sort of Midwestern heartland of the country, whereas Black Rock 0:14:27.720 --> 0:14:30.760 and Vanguard are on the coast kind of And I 0:14:30.800 --> 0:14:33.080 think that actually matters. You know, if you're an advisor, 0:14:33.680 --> 0:14:36.880 you feel like they're just more connected to you, both 0:14:36.920 --> 0:14:39.800 geographically and spiritually in a way, and I think that 0:14:39.840 --> 0:14:40.960 works for them to a degree. 0:14:41.040 --> 0:14:42.960 I think that's a great point. We have a quote 0:14:43.000 --> 0:14:46.280 in the story, thanks to Emily's reporting, where someone who 0:14:46.280 --> 0:14:49.600 I believe is actually from Ohio himself talked about how 0:14:49.600 --> 0:14:53.240 meaningful it was that first trust will like go to you, 0:14:53.640 --> 0:14:55.880 they'll pay attention to you, they'll cater you to you, 0:14:55.920 --> 0:14:58.840 they'll care, they'll care about you. And I think that 0:14:58.840 --> 0:15:01.880 that sense of caring came through and our reporting first. 0:15:02.040 --> 0:15:04.120 Just as far as I can tell, it's like they're 0:15:04.120 --> 0:15:06.280 not putting lip service into the idea that they like 0:15:06.600 --> 0:15:09.480 are really interested in what's happening in like exurban Cleveland. 0:15:09.720 --> 0:15:13.200 They seem to really go to the financial advisors there 0:15:13.280 --> 0:15:15.280 and help them and like think the work they do 0:15:15.400 --> 0:15:18.800 is honorable and that's a you know that that's a 0:15:18.840 --> 0:15:22.480 pretty savvy, savvy move, I think. I think I admire. 0:15:22.160 --> 0:15:25.560 That, and Jim Bowen is really boots on the ground. 0:15:25.600 --> 0:15:29.360 I mean he is going to these various financial advisor 0:15:29.440 --> 0:15:32.320 conferences around the world and making speeches, and I'm not 0:15:32.320 --> 0:15:34.640 sure if you would see that with other, you know, 0:15:34.840 --> 0:15:40.640 CEOs of giant ETF companies going to some conference that 0:15:41.320 --> 0:15:44.840 you know, maybe only a handful of financial advisors actually 0:15:44.840 --> 0:15:45.640 watched the panels. 0:15:46.040 --> 0:15:48.840 Yet at the same time, you know, he's rarely on TV. 0:15:48.920 --> 0:15:50.120 I mean, I don't think I've ever seen him on 0:15:50.200 --> 0:15:53.040 financial TV. I don't see him at the ETF conference 0:15:53.120 --> 0:15:56.480 like he It seems like he's real more focused on 0:15:56.640 --> 0:16:01.160 just going right to the advisor in their space rather 0:16:01.200 --> 0:16:03.640 than doing it through mediums. 0:16:03.680 --> 0:16:06.160 So what is he selling, what's in the portfolio and 0:16:06.200 --> 0:16:07.400 what is performance been like. 0:16:07.440 --> 0:16:13.880 Himly so, First Tres has over one hundred ETFs. They 0:16:13.920 --> 0:16:18.840 have buffer ETFs. One of their biggest funds is a 0:16:19.360 --> 0:16:24.000 dividend index fund, so they have I think Eric had 0:16:24.040 --> 0:16:26.080 mentioned they have a lineup of you can call them 0:16:26.080 --> 0:16:29.560 smart beta funds. They have their buffer funds. They have 0:16:30.280 --> 0:16:34.160 a handful of actively managed fixed income funds that have 0:16:34.920 --> 0:16:40.880 outperformed the AG for some time. They also have a 0:16:40.960 --> 0:16:45.200 crypto fund that did really well in twenty twenty four, 0:16:45.280 --> 0:16:49.800 outperforming some other crypto funds. So it's kind of a 0:16:49.840 --> 0:16:52.760 mixed bag. But you're not going to see a complete 0:16:52.800 --> 0:16:57.160 like plane Vanilla index tracking fund. Most of the funds 0:16:57.800 --> 0:17:03.800 have some type of smart indexing tilt to them. When 0:17:03.840 --> 0:17:08.400 it comes to performance, it's hard to measure, you know, 0:17:09.119 --> 0:17:12.879 how does one ETF company, how does their performance stack 0:17:12.960 --> 0:17:16.760 up against the rest of the competition, because as I mentioned, 0:17:17.040 --> 0:17:19.760 their funds are a little different than what you're going 0:17:19.840 --> 0:17:23.120 to get from a Vanguard or a black rock or 0:17:23.840 --> 0:17:27.359 even a you know, an an investco the other firms 0:17:27.400 --> 0:17:30.040 at the top of the league table. But when it 0:17:30.080 --> 0:17:35.639 comes to comparing First Trust performance, the funds were mediocre, 0:17:35.680 --> 0:17:38.680 pretty middle of the pack when you compare them to 0:17:38.720 --> 0:17:39.840 their morning star appeers. 0:17:39.960 --> 0:17:42.520 Yeah, and this is an important point because if you're 0:17:42.560 --> 0:17:45.680 an advisor, and you are a fiduciary advisor, you could 0:17:45.680 --> 0:17:47.720 get into some hot water if you if you bought 0:17:47.720 --> 0:17:51.000 a first Trust ETF that was fifty basis points more 0:17:51.040 --> 0:17:53.400 than the Vanguard that did the same thing, that would 0:17:53.440 --> 0:17:56.320 be odd and I would think you'd get some looks 0:17:56.359 --> 0:17:58.639 for that. But if you're buying something that has a 0:17:58.680 --> 0:18:01.000 lot of IP in it. It's an active management, there's 0:18:01.000 --> 0:18:04.600 a strategy, it's trying to beat the benchmark. Then it 0:18:04.640 --> 0:18:07.400 could be the fiduciary move because you're paying for the IP. 0:18:08.160 --> 0:18:10.200 And I think First Trust case again to their credit. 0:18:10.280 --> 0:18:12.960 As somebody who covered mutual funds back in the day, 0:18:13.040 --> 0:18:15.240 you just wouldn't believe how much people used to pay 0:18:15.280 --> 0:18:18.240 between the loads and the fees. That a First Trust 0:18:18.280 --> 0:18:20.880 smart beta ETF at fifty five basis points or even 0:18:20.920 --> 0:18:25.000 seventy is a you know, within range of a fair 0:18:25.040 --> 0:18:27.560 deal versus what she used to get in some of 0:18:27.600 --> 0:18:31.080 these mutual funds. That said, somebody else might go, well, 0:18:31.160 --> 0:18:33.440 I can get a Vanguard dividend fund for four or 0:18:33.520 --> 0:18:35.920 five basis points, I don't need that. Well, the First 0:18:35.920 --> 0:18:38.760 Trust person would say, yeah, but we're we put a 0:18:38.800 --> 0:18:43.879 lot of secret sauce into the smart beta process in 0:18:43.920 --> 0:18:46.360 a way that you know, maybe it values certain stocks 0:18:46.359 --> 0:18:49.080 and this and that, and that secret sauce is how 0:18:49.119 --> 0:18:51.840 much is that worth? Well, that's what people are struggling 0:18:51.920 --> 0:18:54.359 with right now in the ETF space. Capital Group, all 0:18:54.400 --> 0:18:57.600 these legacy asset manager coming into the ETF space, which 0:18:57.640 --> 0:19:00.280 I call the terrodome because it's so brutal trying to 0:19:00.280 --> 0:19:03.440 figure out how can I sell this thing when everything's free? 0:19:04.400 --> 0:19:05.159 It's not easy. 0:19:05.440 --> 0:19:07.919 And so First Trust, in my opinion, has found a 0:19:08.000 --> 0:19:12.159 viable road in selling IP and you know, doing a 0:19:12.160 --> 0:19:15.560 lot of relationship management with it, keeping in touch with 0:19:15.600 --> 0:19:19.040 the advisor, being nice to them. And so we have 0:19:19.119 --> 0:19:23.600 studied them because honestly, they're like, they're a model, I 0:19:23.640 --> 0:19:26.119 guess of one way to fight the Vanguard effect. And 0:19:26.440 --> 0:19:28.679 when we write on the Bloomberg terminal, you know a 0:19:28.720 --> 0:19:31.480 lot of our clients are scared of Vanguard. Let's just 0:19:31.520 --> 0:19:35.439 be it's you know, it's it's like Amazon coming to 0:19:35.480 --> 0:19:37.840 your little town, you know, when you're a retail shop, Like, 0:19:37.880 --> 0:19:40.199 how can I, Oh, here's this shop that actually is 0:19:40.240 --> 0:19:41.679 still successful and profitable? 0:19:41.800 --> 0:19:42.520 How to do it? 0:19:42.840 --> 0:19:44.760 So to me, First Trust has always been at least 0:19:44.760 --> 0:19:48.400 somewhat of a model for how to you know, live 0:19:48.440 --> 0:19:50.600 and survive and even thrive in the Vanguard era. 0:19:50.920 --> 0:19:54.840 Is Pterodoma reference to the third Mad Max with That's Thunderdome. 0:19:56.160 --> 0:19:58.159 I know the Terodome reference is in you. 0:19:59.600 --> 0:20:02.879 It's around the same year, Oh public Enemy, thank you. 0:20:03.040 --> 0:20:05.680 Yes. If you look at the lyrics of that song, 0:20:05.760 --> 0:20:08.160 it's that's what you feel when you launch an ETF. 0:20:09.240 --> 0:20:11.639 This is the first time in exchange traded fund and 0:20:11.720 --> 0:20:16.560 public enemy were mentioned in the same minute. 0:20:18.040 --> 0:20:20.240 Okay, Emily, I want to bring it back to some 0:20:20.280 --> 0:20:21.920 of the other reporting that you have in this story, 0:20:21.920 --> 0:20:24.439 because there's some interesting details that came out of divorce 0:20:24.520 --> 0:20:28.040 proceedings as well that really show how the company First 0:20:28.080 --> 0:20:31.840 Trust goes about entertaining right and that is the thing 0:20:31.840 --> 0:20:35.560 that has they've attempted to distinguish their business model with. 0:20:35.720 --> 0:20:37.959 So when you think about all of this and how 0:20:38.000 --> 0:20:39.679 they go about doing it, what are some of the 0:20:39.720 --> 0:20:42.360 things that stick out to you and how we'll First 0:20:42.400 --> 0:20:47.400 Trust likely continue to distinguish itself in the marketplace. 0:20:48.520 --> 0:20:52.840 This is a company that really puts an emphasis on 0:20:54.000 --> 0:20:58.760 the entertaining of these financial advisors. And there was an 0:20:58.800 --> 0:21:04.040 email that we uncovered where the wholesaler said, we're expected 0:21:04.119 --> 0:21:07.760 to entertain. The company was built on entertaining. It was 0:21:07.920 --> 0:21:11.639 and still is the leg up on our competition. So 0:21:11.720 --> 0:21:14.440 that is really where they stand out. 0:21:14.920 --> 0:21:17.920 You know that reminds you family, we have all these 0:21:17.920 --> 0:21:20.200 details in the story that are I think pretty fun 0:21:20.200 --> 0:21:23.000 and pretty eye catching. Forty eight hundred dollars from as scarves. 0:21:24.000 --> 0:21:26.960 It was it seventy thousand bucks, Emily at like a 0:21:27.040 --> 0:21:31.400 rich Carlton in Florida, you know, the three hundred dollars 0:21:31.480 --> 0:21:34.679 hockey tickets and three hundred bucks on top. It reminds 0:21:34.680 --> 0:21:36.520 me that we're living in this current moment right now 0:21:36.720 --> 0:21:40.200 where I think there's a really big open question about 0:21:40.320 --> 0:21:42.719 the rules of the road for businesses right which is 0:21:42.760 --> 0:21:45.520 a nice way of saying regulation. And the way is 0:21:45.560 --> 0:21:47.520 that those rules are going to be rolled back, which 0:21:47.560 --> 0:21:50.800