WEBVTT - 5 Surprising Things About the European ETF Market 0:00:06.160 --> 0:00:08.920 Well carew brilliance. I'm Joel Weber and I'm Eric Belchiernis. 0:00:12.520 --> 0:00:15.600 I was in London recently, Eric, and one thing I've 0:00:16.239 --> 0:00:18.880 learned about being in London is that you're kind of 0:00:18.880 --> 0:00:21.720 a superman in the ETF space, but you have sidekicks. 0:00:22.200 --> 0:00:24.040 And one of them has been on the show a 0:00:24.079 --> 0:00:29.080 couple of times. Tom Sarah Vegas. He's relocated to London recently. Yeah, 0:00:29.120 --> 0:00:31.880 he's like, he's like a Miniu but over there. Yeah, 0:00:31.920 --> 0:00:35.279 effectively Robin to your batman, I guess. So you know, 0:00:35.440 --> 0:00:38.839 I think Tom is his own man. He's much more 0:00:38.880 --> 0:00:42.040 of an expert in smart beta and multi factor research 0:00:42.080 --> 0:00:44.360 than I am. For sure, he's our smart beta expert. 0:00:44.800 --> 0:00:46.800 But the reason he went to London. He was here 0:00:46.920 --> 0:00:49.840 for a full year, and we kept getting the same 0:00:50.640 --> 0:00:54.959 reply from clients, I love this data set on the library, 0:00:55.080 --> 0:00:56.960 or I love this note, but can you do it 0:00:57.040 --> 0:00:59.640 for Europe? But can you do it for Europe? But 0:00:59.720 --> 0:01:01.200 can you do it for Europe? And we got this 0:01:01.280 --> 0:01:04.280 so many times that we thought, Okay, we should just 0:01:04.319 --> 0:01:07.559 do it for Europe. And Tom is being sent there 0:01:07.560 --> 0:01:10.200 to do it for Europe. So I went to the 0:01:10.240 --> 0:01:13.919 pub with him bottom a pint. We have an incredible office, 0:01:13.959 --> 0:01:16.200 this little pub around the corner. We took him there 0:01:17.000 --> 0:01:19.320 and started kicking some stuff around with him, and we 0:01:19.440 --> 0:01:21.520 just started talking about e t F s in Europe, 0:01:21.560 --> 0:01:24.399 and I thought this would actually be a really good episode. 0:01:24.480 --> 0:01:26.600 And he happens to be back in New York now 0:01:27.160 --> 0:01:30.040 on like a spring break, I guess, And we said, 0:01:30.080 --> 0:01:31.440 why don't why don't we talk to him about what 0:01:31.440 --> 0:01:34.560 he's learned in the little baptism he's had in Europe. Yeah, 0:01:34.640 --> 0:01:36.480 I think it's good to think global sometimes. The t 0:01:36.720 --> 0:01:39.119 F they trade and I think last time I checked 0:01:39.120 --> 0:01:42.840 seventy exchanges around the world. Europe is the second biggest 0:01:42.880 --> 0:01:46.120 area after the United States. But it is different, and 0:01:46.160 --> 0:01:49.600 the culture is different, the regulations are different, and kind 0:01:49.600 --> 0:01:51.400 of it was a it's a good excuse to get 0:01:51.440 --> 0:01:55.720 some perspective on how investors in another country do it 0:01:55.760 --> 0:01:59.520 and some similarities and differences. The US is somewhat spoiled 0:02:00.040 --> 0:02:01.880 because it's just the US over there. There's all these 0:02:01.880 --> 0:02:05.400 different countries, They've got different currencies. We sometimes referred to 0:02:05.440 --> 0:02:07.440 it as the Wild West in terms of trying to 0:02:07.520 --> 0:02:12.280 tame that beast, which is all these different uh like legacy. Uh, 0:02:12.440 --> 0:02:15.480 situations that make it hard to just do certain things 0:02:15.480 --> 0:02:17.839 that are easy in the US, and so Tom has 0:02:17.880 --> 0:02:20.560 his work cut out for him. Okay, So joining us 0:02:20.560 --> 0:02:23.679 on this episode of Trillions, Tom Saraphagus, an analyst with 0:02:23.720 --> 0:02:30.080 Bloomberg Intelligence. This WEEKND Trillions, five surprising things about the 0:02:30.120 --> 0:02:36.240 European et F markets. Tom, Welcome back to Trilliance. Can 0:02:36.280 --> 0:02:41.880 you say your first name again? Last name Sara Hagus? Okay, 0:02:42.000 --> 0:02:44.160 it's I have a much easier time in Europe getting 0:02:44.560 --> 0:02:47.120 by with that name. He's our version of the Greek freak. 0:02:47.880 --> 0:02:50.000 It's just a basketball player for those who don't know 0:02:50.040 --> 0:02:53.160 from the other Bucks with a crazy Greek leame. So, Tom, 0:02:53.240 --> 0:02:56.240 how do you like London so far? It's great. Yeah, 0:02:56.320 --> 0:02:58.799 it's it's going great. I've always uh, you know, I've 0:02:58.800 --> 0:03:01.160 been to London before, so you know, before I decided 0:03:01.200 --> 0:03:02.800 to go, I had to make sure I like the city. 0:03:02.880 --> 0:03:04.840 So it's sort of just like a cleaner version of 0:03:04.919 --> 0:03:07.320 New York, a little bit of a slower pace. But 0:03:07.600 --> 0:03:10.040 so far, so good. And talk to me about what 0:03:10.080 --> 0:03:13.600 you've learned since you've been there. So I think Eric's 0:03:13.639 --> 0:03:15.680 sort of like alluded to it in the intro with 0:03:15.760 --> 0:03:19.160 the t F market, I meant life like it's much 0:03:19.200 --> 0:03:23.760 slower paced. Uh, And they take their holidays very seriously 0:03:24.000 --> 0:03:26.840 and they're called holidays. Yeah, they are called holidays, And 0:03:26.919 --> 0:03:30.120 apartments are called flats. The elevators to lift, so you 0:03:30.160 --> 0:03:31.680 sort of have to get used to it. You know. 0:03:31.800 --> 0:03:35.320 It's like English technology. So that is actually a perfect 0:03:35.320 --> 0:03:37.720 transition into E T S. Right, So what's it like 0:03:37.800 --> 0:03:41.160 over there? So I would say overall, it's the same 0:03:41.200 --> 0:03:46.080 but different, right, and so can we end the podcast 0:03:46.080 --> 0:03:50.600 there is that it? So overall, Um, you know, they 0:03:50.600 --> 0:03:52.920 do want to be like the US, but um, some 0:03:52.960 --> 0:03:54.720 things that are kind of alluded to, they're just they're 0:03:54.720 --> 0:03:56.880 not there yet there, you know. I think the biggest 0:03:56.920 --> 0:03:59.200 thing is we call it Europe, right, but when you 0:03:59.240 --> 0:04:02.320 think about it, it's all these regional markets all put together. 0:04:02.360 --> 0:04:04.640 They're all very different, to have different mentalities, they have 0:04:04.640 --> 0:04:08.200 different investor bases. There's a lot of fragmentation in Europe. 0:04:08.560 --> 0:04:10.920 So I think as they move sort of trying to 0:04:10.920 --> 0:04:13.440 be more centralized, the market is going to grow faster. 0:04:13.560 --> 0:04:15.680 But um, they really want to grow. I think they 0:04:15.960 --> 0:04:18.320 It's sort of why we even decided to put an 0:04:18.320 --> 0:04:21.159 analyst age because they asked for for content. They're like, 0:04:21.200 --> 0:04:24.960 we really want more help into helping figure out this market. Um, 0:04:25.000 --> 0:04:26.680 which is why we're in the position that we're in. 0:04:26.760 --> 0:04:28.880 So UM, I think it's gonna keep continuing to grow, 0:04:29.640 --> 0:04:32.039 not to say it doesn't have its own hurdles, but okay, 0:04:32.080 --> 0:04:35.640 so you brought with you something like five mind blowing facts. 0:04:36.400 --> 0:04:38.360 Are they gonna blow my mind and Eric's mind or 0:04:38.400 --> 0:04:41.440 just mine? I'm gonna pretend my mind is blow. I 0:04:41.560 --> 0:04:44.000 probably know these, but I when I first saw them, 0:04:44.000 --> 0:04:46.920 my mind was blown. So I'll go back to that 0:04:47.080 --> 0:04:50.520 feeling of not knowing. I think some Eric might know, 0:04:51.560 --> 0:04:55.560 but definitely some Eric might know. Um, I think any 0:04:55.560 --> 0:04:57.240 of the et F nerds listening are going to be 0:04:57.600 --> 0:04:59.360 blown away. But there's some other ones that I think 0:04:59.440 --> 0:05:01.839 Eric didn't know about. Drop your hammer. So let's start 0:05:01.880 --> 0:05:03.800 with the first one. Um, there are actually way more 0:05:03.839 --> 0:05:05.280 e t F s in Europe than there are in 0:05:05.320 --> 0:05:07.800 the U. S is about almost three thousand in Europe. 0:05:07.800 --> 0:05:11.680 There's only about in the US. But asset wise, we're 0:05:11.680 --> 0:05:14.279 at three point six trillion here less than a trillion 0:05:14.360 --> 0:05:17.240 in Europe, right, so way more products, much fewer assets. 0:05:17.279 --> 0:05:18.680 And that goes back to the the thing I was talking 0:05:18.680 --> 0:05:22.279 about fragmentation, right, So if you are so, what you 0:05:22.360 --> 0:05:25.279 end up finding here is we have three smpts, but 0:05:25.320 --> 0:05:28.880 in Europe you have like fifty stock six et s, right, 0:05:29.040 --> 0:05:31.640 because of all that fragmentation. So if you are an 0:05:31.720 --> 0:05:33.880 issue er launching a product in the UK, you're going 0:05:33.960 --> 0:05:36.520 to launch a similar product in France and Germany xcess. 0:05:36.560 --> 0:05:38.440 You end up having a lot of these copycat products, 0:05:38.640 --> 0:05:40.320 and because of that, you end up having a lot 0:05:40.400 --> 0:05:43.400 more products out there, but the assets so when you 0:05:43.440 --> 0:05:46.200 sort of look at assets per product, it's much less 0:05:46.240 --> 0:05:49.360 in Europe. So literally it will be the same et 0:05:49.520 --> 0:05:53.480 F but listed on different exchanges yep, and like different exchanges. 0:05:53.520 --> 0:05:56.120 And also the thing that we are not used to 0:05:56.160 --> 0:05:58.280 here in the US their share classes there, right, So 0:05:58.640 --> 0:06:00.160 if you buy an e t F to paysitive, then 0:06:00.480 --> 0:06:03.000 you're getting that dividend and Europe you get to pick 0:06:03.080 --> 0:06:04.719 that I want the dividend do I want the dividend 0:06:04.760 --> 0:06:07.640 being reinvested. So there's all these nuances that you don't 0:06:08.080 --> 0:06:10.880 um sort of appreciate being a US invest So that's 0:06:10.920 --> 0:06:14.040 interesting because I think there's a little behavioral economics in there, 0:06:14.040 --> 0:06:16.200 which is when you have too much choice. Maybe it's 0:06:16.200 --> 0:06:18.839 a bad thing. And when you talk about all those 0:06:18.839 --> 0:06:22.000 different products, are we talking about if you are are 0:06:22.000 --> 0:06:24.479 you are they cross list thing on all these different 0:06:24.480 --> 0:06:27.120 exchanges or do they actually go to that country domicile 0:06:27.200 --> 0:06:29.160 and come out with a fresh new product in that country. No, 0:06:29.400 --> 0:06:31.640 So what it will be is um. There's also issuers 0:06:31.640 --> 0:06:34.279 in all different countries. Right, So there's DWS right, which 0:06:34.279 --> 0:06:37.640 is German, There's I Shares, there's the French issues, so 0:06:37.640 --> 0:06:38.960 a lot of them. What they do is okay, So 0:06:39.000 --> 0:06:41.239 like French clients are gonna buy from the French issues, 0:06:41.360 --> 0:06:43.320 So the French companies are going to launch the you know, 0:06:43.400 --> 0:06:46.240 the the broad bench mark e TS DWUS is gonna 0:06:46.279 --> 0:06:49.200 launch this broad market et F, I Shares, Vanguard, etcetera. 0:06:49.240 --> 0:06:50.760 So you end up having a lot of the same 0:06:50.760 --> 0:06:54.760 products just launched them the different respective markets. Um. And 0:06:54.800 --> 0:06:56.880 then on the cross listings. That's one thing too. But 0:06:56.880 --> 0:06:59.720 there's also different share classes which we don't have here 0:06:59.760 --> 0:07:01.360 in the U. S. That's a that's a very new 0:07:01.400 --> 0:07:03.480 thing for anyone who's sort of been trained in the 0:07:03.600 --> 0:07:05.640 US and going over to Europe. Uh. And they also 0:07:05.680 --> 0:07:07.440 have different currencies. Again, I think we don't really have 0:07:07.480 --> 0:07:09.840 to deal with here. So there's a lot more decisions 0:07:09.840 --> 0:07:11.840 that go into buying an et F there do I 0:07:11.880 --> 0:07:14.080 want this? Do I want the dividends? And what currency 0:07:14.280 --> 0:07:16.440 I want? A currency hedge? And then what currency the frank, 0:07:16.560 --> 0:07:19.200 the Euro, the pound. Right, So there's all these decisions 0:07:19.240 --> 0:07:21.880 that go into buying an ETF that we don't that 0:07:21.960 --> 0:07:25.200 we're not necessarily used to here. Okay, so related what 0:07:25.240 --> 0:07:28.000 are people investing in if they're not investing in ETFs 0:07:28.440 --> 0:07:30.880 active mutual funds? So like here again, the whole the 0:07:31.000 --> 0:07:34.160 big battle there is sort of active active mutual funds 0:07:34.240 --> 0:07:37.680 versus et s UM And then a new piece of 0:07:37.040 --> 0:07:39.840 of of regulation went into effect last year which is 0:07:39.840 --> 0:07:41.800 MYFED two, and that was really trying to shine the 0:07:41.920 --> 0:07:44.760 light on the cost of active. Right, active funds are 0:07:44.840 --> 0:07:47.040 much more expensive. Research plays a big part in that 0:07:47.160 --> 0:07:49.280 it does, and the unbeldoding of research and ETFs just 0:07:49.560 --> 0:07:51.640 naturally are going to be the beneficiary of that. Right 0:07:51.680 --> 0:07:55.080 as there's more scrutiny on costs and that comes the light, uh, 0:07:55.160 --> 0:07:56.760 and there's sort of trying to get away from the 0:07:56.760 --> 0:07:59.040 commission based models which have been really big in Europe. 0:07:59.320 --> 0:08:02.040 Et f are just naturally gonna do we just pause there? 0:08:02.120 --> 0:08:04.400 This is major to me. This is the biggest catalyst 0:08:04.440 --> 0:08:06.000 for et F growth in the U S, which is 0:08:06.320 --> 0:08:08.880 the shift away from the commission model. So all these 0:08:08.920 --> 0:08:11.640 wealth managers and advisors were getting paid by the mutual fund. 0:08:12.160 --> 0:08:14.840 It's kind of like a kickback, and that's what determined 0:08:15.080 --> 0:08:18.000 whether you were in this fund or that fund. That 0:08:18.560 --> 0:08:21.640 it's dying and the new form is fee based, which 0:08:21.760 --> 0:08:24.720 essentially just means the advisor gets a percent of the 0:08:24.800 --> 0:08:28.440 client's assets. And once they're getting a percentage of that pie, 0:08:29.080 --> 0:08:31.840 of course they're motivated to pick cheap stuff because now 0:08:31.880 --> 0:08:34.880 it's coming out of their money too. If if in 0:08:34.920 --> 0:08:36.760 the US we are saying, I don't know in the 0:08:36.880 --> 0:08:39.640 sixth inning of that move, some people may debate that, 0:08:39.679 --> 0:08:41.640 but let's just say we're in the sixth inning. Where 0:08:41.679 --> 0:08:44.760 are we in Europe from the broker the commission broker 0:08:44.840 --> 0:08:46.840 model to the fee based model. Sure, I would say 0:08:46.880 --> 0:08:49.760 we're probably late first inning because if it just went 0:08:49.800 --> 0:08:52.360 into effect last year, right, so it's just all of 0:08:52.520 --> 0:08:55.400 now bringing on that, shedding that light on it. And 0:08:55.480 --> 0:08:57.920 when these things passed, it's never perfect right from the 0:08:57.960 --> 0:08:59.960 get go. It's like Okay, we're gonna pass this regulation 0:09:00.000 --> 0:09:01.959 and it's going to be perfect. They're still sort of 0:09:02.000 --> 0:09:04.480 the industry still started, still trying to figure it out. 0:09:04.760 --> 0:09:07.839 So it's still very early innings in Europe on sort 0:09:07.880 --> 0:09:11.599 of that transition over there. And culturally are people a 0:09:11.679 --> 0:09:16.360 little less okay, paying more in Europe? Because in the 0:09:16.640 --> 0:09:19.839 in the US, whether it's Amazon or E t F 0:09:20.000 --> 0:09:23.720 or Vanguard, whatever, people are pretty We're like professional consumers. 0:09:24.120 --> 0:09:27.520 We are a consumer culture and we're very sensitive to cost. 0:09:27.880 --> 0:09:31.559 We will go to the to me. Yeah, So are 0:09:31.640 --> 0:09:34.400 they that intense over there when it comes to that culturally, 0:09:34.559 --> 0:09:37.040 I would say no. And it's even this goes back 0:09:37.120 --> 0:09:39.160 to the distribution. The way it's handled in Europe is 0:09:39.240 --> 0:09:41.720 you go to your bank, right in your bank handles everything. 0:09:41.840 --> 0:09:43.640 So I have my mortgage in my savings account on 0:09:43.640 --> 0:09:45.719 my investment account at my bank, and I had that 0:09:45.800 --> 0:09:48.400 because my dad had that. So when my dad passed 0:09:48.400 --> 0:09:49.920 to the account to me, I'm not moving it because 0:09:49.920 --> 0:09:52.959 it's convenient. It's there already, know the advisor. They're charging 0:09:53.000 --> 0:09:55.199 me whatever they're charging me, and they're putting me in 0:09:55.320 --> 0:09:59.200 their active funds. So yeah, there is this huge uh, 0:10:00.040 --> 0:10:02.079 the cost obsession isn't as big in Europe, and we 0:10:02.120 --> 0:10:04.839 actually see it in the flows. And I've studied this 0:10:05.440 --> 0:10:08.440 um here. Right. If et F cuts its feed by 0:10:08.440 --> 0:10:11.319 basis point, everyone sort of shifts over in Europe. It's 0:10:11.400 --> 0:10:14.120 just not that obsessive on costs. Yeah. I think as 0:10:14.240 --> 0:10:17.720 more education comes and there's more more the regulation gets 0:10:17.840 --> 0:10:20.280 put to the to the forefront, it'll the obsession I 0:10:20.320 --> 0:10:22.400 think will start to because like the land before time, 0:10:23.000 --> 0:10:26.760 you know, it's like twenty years ago, we'll get there. 0:10:33.120 --> 0:10:35.520 All right, My mind is not blown, but you know 0:10:35.600 --> 0:10:40.360 I've got you've impressed me. There you go, uh fact 0:10:40.360 --> 0:10:42.559 to a number two Okay, I think this one is 0:10:42.600 --> 0:10:45.760 an interesting one, and it's on Vanguard, right, So they 0:10:46.000 --> 0:10:48.839 you cannot talk about the the industry here and not 0:10:48.920 --> 0:10:51.160 bring a vanguard. They are such a big powerhouse here, 0:10:51.200 --> 0:10:53.959 they're sucking up all the floats, they're changing the advisor 0:10:54.040 --> 0:10:57.280 model everything. Here in Europe they don't have that same 0:10:57.480 --> 0:11:00.280 sort of No one really knows who Vanguard is, right, 0:11:00.320 --> 0:11:02.839 So the number two issue where here they're like number 0:11:02.920 --> 0:11:06.559 six in Europe. They have markets here only four percent 0:11:06.600 --> 0:11:09.160 in Europe. So what I think is really interesting is 0:11:09.200 --> 0:11:11.319 that here Vangard doesn't really have to do anything, like 0:11:11.440 --> 0:11:13.800 everyone knows their Vanger. They're cheap and all the money's 0:11:13.800 --> 0:11:16.000 flowing to them. In Europe, they sort of have to 0:11:16.240 --> 0:11:18.719 go out and promote themselves like, hey, we're Vanguard, this 0:11:18.840 --> 0:11:20.640 is what we're doing. Uh, you know, we do each 0:11:21.160 --> 0:11:26.120 We're kind of a big deal. We're from Pennsylvania. So 0:11:26.280 --> 0:11:28.160 I think it's really interesting that you sort of see 0:11:28.200 --> 0:11:30.559 them not in the top tier firm. They're sort of 0:11:30.600 --> 0:11:32.160 like in the second tier and they actually have to 0:11:32.240 --> 0:11:34.520 like hustle and work and like sort of do all 0:11:34.559 --> 0:11:37.040 the work that the other firms have to compete with 0:11:37.120 --> 0:11:38.840 them here in the US. So they've that role sort 0:11:38.840 --> 0:11:41.679 of reversed in Europe for them if they're six, right, 0:11:41.920 --> 0:11:45.480 Uh black Rock is where what are they? Black Rock 0:11:45.600 --> 0:11:48.200 is one? So so it's not like a U S thing. 0:11:48.280 --> 0:11:50.679 It's just they were late going there. Maybe they were late, 0:11:50.760 --> 0:11:53.240 and but they are sort of what we've seen here 0:11:53.280 --> 0:11:55.599 with like JP Morgan being really aggressive. I see that 0:11:55.640 --> 0:11:57.760 with Vanguard over there, like they're opening the opening up 0:11:57.800 --> 0:12:00.599 new offices, they're really building out their sales teams, so 0:12:00.600 --> 0:12:02.520 they're really sort of in ramp up mode. When I 0:12:02.559 --> 0:12:04.280 feel like here the sort of just sitting back and 0:12:04.640 --> 0:12:07.000 sort of just collecting all the money. The fisher jumping 0:12:07.000 --> 0:12:08.920 in the boat here. Yeah, exactly. Yeah, they've taken like 0:12:09.000 --> 0:12:13.640 a little over a billion a day here. How quickly 0:12:14.000 --> 0:12:17.240 have they risen in the ranks? Though, they're rising very quickly. 0:12:17.400 --> 0:12:20.280 I think every issuer has their eye on them because 0:12:20.320 --> 0:12:23.920 they've seen the success they've had here. Um, And it's interesting. 0:12:23.920 --> 0:12:26.160 They're not the cheapest ones out there in Europe. There 0:12:26.160 --> 0:12:28.240 are other firms that are cheaper than they are, but 0:12:28.400 --> 0:12:29.760 all the E t f s are there. You can 0:12:29.840 --> 0:12:31.559 quind of see them like starting to warm up, like 0:12:31.640 --> 0:12:33.480 they sort of like the picture of the bullpen, like 0:12:33.520 --> 0:12:35.520 they're starting to warm up and everyone's starting to watch 0:12:35.600 --> 0:12:38.440 them because they have seen what they've done here. Um, 0:12:38.559 --> 0:12:40.840 and they're you know, they're they've been really aggressive with hirings. 0:12:40.920 --> 0:12:43.439 So what's the football? Mon the four? It's like he's 0:12:43.480 --> 0:12:47.760 got the the like the kicker starts like exactly into 0:12:47.800 --> 0:12:49.520 the net thing. By the way, have you picked a 0:12:49.559 --> 0:12:52.480 team yet? A club? Sorry? So I've always liked the 0:12:52.800 --> 0:12:54.840 Hot Spurs from a long time ago. Now they're good 0:12:54.880 --> 0:12:56.839 and everyone accusing me that I like them now, But 0:12:58.160 --> 0:13:03.000 we're talking is the soccer because not the San Antonio Alright, 0:13:03.200 --> 0:13:08.480 So I'm actually startled that Vanguard is that sort of 0:13:08.840 --> 0:13:11.679 you know, up and coming over in Europe? Blow my 0:13:11.720 --> 0:13:15.840 mind with another fact, okay, um, retail investors, right, they 0:13:15.920 --> 0:13:18.079 have been really the ones that have been behind a 0:13:18.120 --> 0:13:19.720 lot of the growth here in the US. So if 0:13:19.760 --> 0:13:22.560 you sort of look between retail and institutional, it's about 0:13:22.559 --> 0:13:25.480 a fifty fifty split here, it's very small in Europe. 0:13:25.480 --> 0:13:29.120 It's only about in Europe it's really small. Um. And 0:13:29.200 --> 0:13:32.680 again that comes back to the the commission model, right, 0:13:32.720 --> 0:13:35.160 because everything is at your bank. Your bank's handling everything. 0:13:35.520 --> 0:13:37.360 They're on the commission model, so they're putting you in 0:13:37.480 --> 0:13:40.199 mutual funds. I'm gonna put out a theory. Is this 0:13:40.360 --> 0:13:45.199 because everyone's taxed at a higher rate in Europe and 0:13:45.280 --> 0:13:47.640 therefore they don't have as much disposable income to just 0:13:47.760 --> 0:13:50.360 do their own investing. On the side, I think it 0:13:50.440 --> 0:13:52.080 goes back to the that could be it, but also 0:13:52.120 --> 0:13:54.720 the convenience factor, Like it's just the mentality is very 0:13:54.800 --> 0:13:57.000 different there. So here, you start a job, what's the 0:13:57.000 --> 0:13:58.320 first thing you do? You felt your four O one 0:13:58.360 --> 0:14:00.199 K form, right, and you're sort of like have you 0:14:00.280 --> 0:14:02.520 on I RA. In Europe it's different. They don't sort 0:14:02.559 --> 0:14:05.040 of have this do it yourself like investing culture as 0:14:05.120 --> 0:14:08.160 much as we do here. So retail just hasn't really adopted. 0:14:08.200 --> 0:14:12.880 It is fast, but you know they don't. And by 0:14:12.920 --> 0:14:15.920 the way, by retail, we mean advisors and do it 0:14:16.000 --> 0:14:19.400 yourself retail correct That is stunning. In the US, I 0:14:19.480 --> 0:14:22.960 think that number is probably more like and it's eleven 0:14:23.040 --> 0:14:25.840 percent there. I mean retails were the majority of the 0:14:25.840 --> 0:14:28.960 flows come and advisors institutions use them, but more to 0:14:29.000 --> 0:14:31.560 trade and adjust their portfolio. It's more like for liquidity. 0:14:32.320 --> 0:14:35.080 That is stunning, And I think it does speak to 0:14:35.200 --> 0:14:40.280 that incentive. If the middleman is incentivized to get the 0:14:40.400 --> 0:14:42.480 kick back from the mutual fund and they get paid 0:14:42.560 --> 0:14:45.160 more that way, why on earth would they move to 0:14:45.200 --> 0:14:47.000 an e t F for something that doesn't pay them. 0:14:47.880 --> 0:14:51.400 And this is part of what happened here. But now 0:14:51.800 --> 0:14:54.560 I think people actually look for the fee base model, 0:14:54.600 --> 0:14:58.160 which some people are will use fiduciary. That's the big 0:14:58.240 --> 0:15:00.840 word that's used here for that mode, which is acting 0:15:00.880 --> 0:15:03.960 in your client's best interests. So it sounds like fiduciary 0:15:04.520 --> 0:15:07.000 is not a big deal over there, so I don't 0:15:07.040 --> 0:15:08.320 want to be clear. And this goes back when we 0:15:08.360 --> 0:15:11.160 say Europe, right, so some countries have moved away from 0:15:11.160 --> 0:15:13.480 that commission model, so like the UK, like the Netherlands 0:15:13.520 --> 0:15:15.680 have sort of banned that, but other countries haven't. Right 0:15:15.840 --> 0:15:18.040 this this goes back to the nuance and the fragmentation 0:15:18.120 --> 0:15:20.720 in Europe. So yeah, you might see UK might have 0:15:20.800 --> 0:15:23.080 a bigger chunk of retail and advisors than they do 0:15:23.560 --> 0:15:26.360 in other in other countries too. So I think as 0:15:26.400 --> 0:15:29.600 it gets more centralized and more that models adapted across 0:15:29.680 --> 0:15:32.400 Europe will eventually see it. But for now it's really 0:15:32.480 --> 0:15:35.760 mostly institutional, like it's for for tactical moves or or 0:15:35.960 --> 0:15:39.600 like positions a big portfolio. I was over there and 0:15:39.680 --> 0:15:41.440 I met with initial I won't say who, but I was. 0:15:42.040 --> 0:15:45.400 I was, you know, naive, I guess, and they pointed 0:15:45.400 --> 0:15:48.480 out they said, they said, here's what people are paying 0:15:48.960 --> 0:15:52.360 for for everything, their advisor fee. I'll add it up. 0:15:52.920 --> 0:15:56.120 It came to like six to eight percent. You know, 0:15:56.200 --> 0:15:58.040 that's the fund fee, which is like two percent, then 0:15:58.080 --> 0:16:01.200 the advisor fee and then the the loads. You start 0:16:01.200 --> 0:16:05.000 adding it up, it was like six um here, you know, 0:16:05.080 --> 0:16:07.560 you might pay one percent for your advisor and then 0:16:07.680 --> 0:16:11.560 twenty basis points for your funds. So this is dead's 0:16:11.600 --> 0:16:14.840 a large difference, and I think this is probably what 0:16:14.960 --> 0:16:17.440 a lot of the U S issuers. As this market 0:16:17.520 --> 0:16:21.640 here gets so competitive on price, they're seeing opportunity there 0:16:22.160 --> 0:16:24.160 and that's why you see not just Vanguard, but other 0:16:24.320 --> 0:16:27.280 US companies go over there to try to sort of 0:16:27.400 --> 0:16:32.080 be first. As that model moves, they'll be there with 0:16:32.200 --> 0:16:34.960 the products totally. Can probably squeeze a little bit more 0:16:35.080 --> 0:16:37.040 in Europe yet before all that, because we're starting to 0:16:37.080 --> 0:16:39.560 see really cheap products start to launch now. But they're 0:16:39.600 --> 0:16:42.040 just launching now right, so I think there's still a 0:16:42.080 --> 0:16:43.400 little bit of room for them to be able to 0:16:43.520 --> 0:16:45.200 make make a little bit of money there. And all 0:16:45.240 --> 0:16:46.760 that you actual said, all the U S shuares are 0:16:46.800 --> 0:16:49.560 over there now either they started up their own teams 0:16:49.600 --> 0:16:51.360 there or they bought someone to already have some of 0:16:51.360 --> 0:16:54.400 the infrastructure in place. Okay, I want you to turn 0:16:54.440 --> 0:16:58.680 out the volume. Give me something big. I think this 0:16:58.760 --> 0:17:01.120 one's big, and it's not specifically for et s, but 0:17:01.160 --> 0:17:03.040 I think it's going to bring it full circle. And 0:17:03.120 --> 0:17:07.679 it's sort of like this this policing on closet indexing. Right. 0:17:07.800 --> 0:17:10.280 So what that means is there are funds out there 0:17:10.359 --> 0:17:12.480 that that charge a lot more than say a cheap 0:17:12.520 --> 0:17:14.959 etf but they don't look any different than the benchmark. Right. 0:17:15.520 --> 0:17:17.680 So in the UK they got really strict on this 0:17:17.920 --> 0:17:19.720 and they basically went in and said, Okay, we're gonna 0:17:19.720 --> 0:17:21.240 look at all the funds and if you are just 0:17:21.359 --> 0:17:24.680 a closet indexer, we are going to flag you and 0:17:24.840 --> 0:17:27.200 we're going to make you pay back some of the 0:17:27.280 --> 0:17:30.640 fees to investors. Right. So last year thirty four million 0:17:30.680 --> 0:17:33.119 dollars and fees actually went back to investors. This is 0:17:33.160 --> 0:17:35.679 actually a big deal. This is people are looking at 0:17:35.720 --> 0:17:38.320 portfolios and being like, you're actually not doing what you're 0:17:38.320 --> 0:17:40.919 saying you're doing exactly. So they basically looked at um 0:17:41.000 --> 0:17:43.240 a bunch of things, basically are you giving the value 0:17:43.240 --> 0:17:44.920 that you're saying that you're doing. So it's basically a 0:17:45.040 --> 0:17:49.000 mix of qualitative data that they did balso like quantitative. 0:17:49.040 --> 0:17:50.919 So they went in and said, okay, let's see your 0:17:50.920 --> 0:17:53.840 marketing materials. How are you marketing this fund? Right? Are 0:17:53.880 --> 0:17:55.680 you marketing is sort of like this active fund and 0:17:55.760 --> 0:18:00.119 making all this Yes, exactly. In Europe, they're much more 0:18:00.119 --> 0:18:02.679 aggressive about sort of honing in on these closet indexers here, 0:18:02.720 --> 0:18:04.440 I feel like incess sort of no. They'll look and 0:18:04.480 --> 0:18:05.960 they say, hey, this is the closet nex I'm gonna 0:18:06.000 --> 0:18:09.120 move my my funds there. There's a lot of scrutiny. 0:18:09.240 --> 0:18:12.120 And what's eventually going to happen is you have ETFs 0:18:12.160 --> 0:18:14.160 on one side, you have the closet indexers in the middle. 0:18:14.320 --> 0:18:16.160 Then you're sort of like the high active sture active. 0:18:16.480 --> 0:18:18.800 They're basically coming in the middle and splitting it right there, 0:18:18.800 --> 0:18:21.239 gonna so naturally that split is gonna put a lot 0:18:21.280 --> 0:18:24.920 of money back into ETFs in Europe. So this is fascinating. 0:18:25.000 --> 0:18:27.440 I called the closet indexing police. Whenever I post this 0:18:27.480 --> 0:18:30.639 on Twitter, everybody usually has a negative reaction. They're like, 0:18:30.720 --> 0:18:32.960 don't you know you can't police this stuff? Um, but 0:18:33.040 --> 0:18:34.920 I see what Europe is doing. In the US, I 0:18:35.040 --> 0:18:38.480 think a lot of this happens naturally. People have gone, 0:18:38.600 --> 0:18:41.680 like we call the trend going from closet indexing to 0:18:41.840 --> 0:18:44.520 actual indexing. That's why if you look at the Fidelity 0:18:44.560 --> 0:18:47.720 Magellan where a lot of these big old traditional active 0:18:47.760 --> 0:18:50.400 equity funds, the holdings look a lot like the SMP fire, 0:18:51.160 --> 0:18:52.680 and a lot of people are those are the funds 0:18:52.680 --> 0:18:54.520 they're leaving. Why pay one percent for that when you 0:18:54.600 --> 0:18:57.919 get just about the same thing for five basis points um. 0:18:58.040 --> 0:19:00.679 Again in Europe, maybe people aren't doing it is naturally 0:19:00.680 --> 0:19:02.600 in the in the regular to trying to just push 0:19:02.680 --> 0:19:05.440 this little Here's the issue though, and I've come to 0:19:05.520 --> 0:19:09.560