may 18, 2017 - deloitte · © 2017 deloitte 2 jack lee director –financial services audit and...

ETFs Link & learnMay 18, 2017

2© 2017 Deloitte

Jack LeeDirector – Financial Services Audit and EMEA ETF LeadDeloitte IrelandE: [email protected]: +353 1 417 2467

Seamus KennedySenior Manager – ETF Tax ExpertDeloitte IrelandE: [email protected]: +353 1 417 3637

Derina Bannon

Manager

Legal and Regulatory ETF Expert

Deloitte Ireland

E: [email protected]

T: +353 1 417 2637

Guillaume BrousseDirector– Audit and EFT LeadDeloitte LuxembourgE: [email protected]: +352 451 452 279

Speakers

mailto:[email protected]



3© 2017 Deloitte

01 Growth of ETFs in Europe

03 Tax Landscape for ETFs

Agenda

04 The future for ETFs

What’s next - new generation

of products

02 ETFs themes in governance

4© 2017 Deloitte

Growth of ETFs in Europe

5© 2017 Deloitte

European ETF asset growth as at Feb 2017

ETF Landscape

ETFs have witnessed a significant growth in past years due to:

• Diversification of market risk in a single vehicle

• Very competitive cost structure

• Mostly well regulated

• Wide product range and underlying products

• Strong liquidity resulting in narrow spreads

• Ability to deal intra day

6© 2017 Deloitte

European ETF - Largest listing markets VS largest domicile

ETF Landscape

• Wide difference between domicile and listing places.

• Ireland and Luxembourg are clearly domicile of choice

• UK and GE are clearly listing countries

• France is listing French domiciled ETF

• Swiss and Italy are listing local products and foreign ones.

7© 2017 Deloitte

Sept-16 net new assets by exposure type (US$m)

YTD net new assets by exposure type (US$m)

• Net inflows of US$2,983m.• Three largest inflows:

• Fixed income - US$1,153m• Equity - US$1,037m; and• Commodities - US$667m.

• Largest net outflows - Active - US$53m.

• YTD net inflows of US$41,542m.• Three largest inflows:

• Fixed income - US$26,498m;• Commodity - US$12,154m, • Leveraged inverse - US$1,229m,

• Largest net outflows YTD – Active - US$110m.

# flows US$m # flows US$m

-500

-

500

1,000

1,500

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e

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e

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ency

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ged

Altern

ative

Equity

Com

moditie

s

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ed I

ncom

e

Net Inflows Sept-16 (US$m)

-2,000

3,000

8,000

13,000

18,000

23,000

28,000

Invers

e

Active

Mix

ed

Levera

ged I

nvers

e

Curr

ency

Levera

ged

Altern

ative

Equity

Com

moditie

s

Fix

ed I

ncom

e

YTD net inflows (US$m)

ETF Landscape

ETFs by asset class: Europe

8© 2017 Deloitte

ETF providers by assets: Europe

Top 5 providers with new ETFs launched in 2016• SPDR ETFs - 21• BNP Paribas - 18• db x/db ETC - 17• UBS ETFs – 13• Lyxor AM - 13

# Assets US$m # ETFsProvider

Assets (in US$ Million)

Sept-16 # ETFs % Market

Share

NNA (US$ Mn) YTD

2016

# New ETFs

Launched

iShares 266,040 287 47.3% 25,275 12

db x/db ETC 61,241 217 10.9% - 2,136 17

Lyxor AM 51,976 222 9.2% - 437 13

UBS ETFs 29,993 135 5.3% 1,883 13

Amundi ETF 23,827 102 4.2% 1,433 5

Vanguard 23,002 21 4.1% 2,997 4

Source 22,019 82 3.9% 1,576 6

ETF Securities 19,347 360 3.4% 5,015 1

SPDR ETFs 17,478 100 3.1% 3,761 21

Commerzbank 8,375 115 1.5% 404 2

Deka 8,242 43 1.5% 489 0

ZKB 7,863 4 1.4% 468 0

HSBC/Hang Seng 5,187 27 0.9% - 493 0

BNP Paribas Easy 4,668 41 0.8% - 134 18

XACT 3,097 13 0.6% 359 3

Swiss & Global 2,439 16 0.4% 182 0

PowerShares 2,349 20 0.4% 461 4

Ossiam 2,075 10 0.4% 9 1

Think ETFs 1,833 14 0.3% 2 1

Societe Gen 1,096 20 0.2% 289 0

-

50

100

150

200

250

300

350

400

-

50,000

100,000

150,000

200,000

250,000

300,000

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Lyxo

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Van

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ang

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Chart Title

Assets (in US$ Million) Sept-16 # ETFs

ETF Landscape

ETF providers by assets: Europe

9© 2017 Deloitte

Average Total Expense Ratio

• Average expense ratio of 31 bps. • Cheapest products track fixed

income indices at 26 bps• Most expensive are alternative ETFs

at 77 bps.• 48 ETFs with an expense ratio less

than 10 bps• 43 ETFs with an expense ratio

greater than 80 bps.

Average TER (bps)# Assets US$bn # ETFs

0

50

100

150

200

250

300

350

400

450

0

20

40

60

80

100

120

140

160

180

0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80+

TER (bps) 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80+

#ETFs 48 347 399 262 185 144 101 37 43

ETF assets (US$ Bn) 56 161 83 94 63 28 15 11 3

Asset class ETFs

Equity 32

Fixed Income 26

Commodities 44

Alternative 77

Mixed 65

Active 34

Inverse 32

Leveraged 46

Leveraged Inverse 42

All 31

ETF Landscape

Total expense ratios: Europe

10© 2017 Deloitte

ETF Operations and type of strategies

Simple but complex

11© 2017 Deloitte

Unique to an ETF

Could bea regular fund

ETF Definition

ETF Operations and type of management styles

Listed and traded on exchanges like stocks on a secondary basis as well as utilising a unique

creation and redemption process for primary transactions

The investment objective of most ETFs is to generate returns that closely correspond to the

performance of an established index (tracker fund)

Listing on a stock exchange with the legal structure of a Fund

Secondary market: no subscription fees, no sales charges upon purchase/lower cost but investors

pay brokerage commissions to buy or sell

Primary market: Large institutions create/redeem shares through “in-kind”

transactions

Open-ended funds providing daily portfolio transparency

12© 2017 Deloitte

Management styles


PHYSICAL REPLICATION

SYNTHETIC

REPLICATION

Investment in a basket of shares + gain of the index

performance through derivatives (SWAPS)

Investment in all or portion of the shares of the

benchmark and on going adjustments to ensure

adequacy

13© 2017 Deloitte

Physical vs synthetic


• After the economic crisisgrowth in AuM of SyntheticETFs was almost stabilised.

• The growth in AuM ofPhysical ETFs increasedsubstantially since 2011

• In 2017 approximately 80%of European ETF AUM isrepresented by syntheticreplication

• There are more Syntheticthan Physical ETFs

• Since 2012 the number ofSynthetic ETFs decreased,whereas the number ofPhysical ETFs increasedsteadily

14© 2017 Deloitte

Drivers for Growth in ETFs


DIVERSIFICATION

LOW COST

LIQUIDITY

TRANSPARENCY

TRADING

FLEXIBILITY

TRACKING

15© 2017 Deloitte

Governance and ETFs

Themes in Governance

16© 2017 Deloitte

Overview

Governance and ETFs

• Good governance can add value as it enables stakeholders to have confidence in the decision-making processes and management of ETF. To foster market confidence it is important that ETF Boards ensure that investors are protected while encouraging innovation and investment in an increasingly complex, uncertain and ever-changing market

• Exchange Traded Funds (‘ETF’ market) have grown in both complexity and popularity as an investment option

• Heighted attention on the area of governance – WHY ?

• The landscape has evolved and developments such as globalisation, digitisation, innovation and regulation are contributing to a changing market and are shifting risk profiles.

Fiduciary

Stewardship

17© 2017 Deloitte

New Waves of Regulation

Governance and ETFs

1. European Union Fourth Anti-Money Laundering Directive is the European Union’s most recent response to the threat of the financial system being used for money laundering and terrorist financing purposes. It sets out a risk based approach and detailed framework which ETFs must comply with to effectively manage their money laundering and terrorist financing risks. It is increasingly common for Boards to undertake training on AML/CTF to ensure that they are aware of the requirements and responsibilities under this regulation. ETF Boards will not be able to rely on third parties to conduct elements of customer due diligence, and will need to ensure and evidence effective on-going monitoring of investor transactions. Member states must implement the directive into domestic legislation by June 2017

2 General Data Protection Regulation (“GDPR”) is directly applicable in EU member states and is due to come into force in May 2018. It will both update and overhaul data protection law. The new regulation aims to remove red tape for businesses but also tighten privacy protections for online users. Practically speaking, this means that boards of ETF fund companies and asset managers will have to proactively plan their strategies to deal with the new requirements and obligations under the GDPR. Fines of up to 4% of global turnover (or €20 million –whichever is higher) will be imposed for breaches. Boards and Audit Committees will need to understand their new roles and the responsibilities created, in addition to compliance requirements and privacy risks. ETF Boards must ensure effective oversight of these areas is fully embedded into their governance structure.

2 examples

The level of local and European regulatory pressure is set to remain intense. As a result, regulation should continue to remain high on board agendas, with focus on a number of new regulatory developments :

18© 2017 Deloitte

New waves of regulation : the tide shows no sign of turning

Governance and ETFs

Aside from Boards getting to grips with specific new regulations.

They will also need to ensure that they fully understand the global and local regulatory landscape

Theassociated risks

And how they will impact the ETF market.

Managing regulatory cost

And dealing with regulatory constraints are expected to be part of long journey ahead in 2017 and should be a key consideration for Boards

19© 2017 Deloitte

Evolving Board responsibilities and demonstrating execution of these responsibilities should be a key priority for Boards going forward

Governance and ETF’s

Boards are not only expected to focus on their traditional fiduciary responsibilities such as monitoring performance, risk and compliance, they must also effectively provide effective stewardship through helping shape and advise on areas such as culture, innovation and cyber security.

Innovation ETF Boards are tasked with overseeing the operation and suitability of new and innovative ETFs. This should include shaping and supporting the development of more active ETFs products in response to investor appetite and in line with the pace of technologic change. For example, FinTech, which provides data analytics to produce product comparisons and online distribution platforms.

Cyber Security This new technology and innovation bring market opportunities. They also present new risks, such as cyber security risk, which continues to be an area of focus for regulators throughout the EU. While the applicability of some of the measures to mitigate these risks will depend on the structure and set up of the ETF, ETF Boards should ensure that they understand the cyber security risks and controls in place, both at an internal and external third party level, are effectively overseeing them.

Culture Regulators are interested in Board

oversight of culture. For an ETF Board, this will include the culture

within the ETF and its service providers, particularly the

investment manager, and how this culture is promoting and protecting

investors’ interests.

While a critical role of EFT Boards relates to its role as monitor of

legal and fiduciary duties, this role

is changing..

20© 2017 Deloitte

As we see the complexity of ETF products increase and different areas of the market open, the risk profile of ETFs are undoubtedly increasing.

Continued focus on the protection of investors and effectively understanding and overseeing risk in the context of the ETF market .

All risks all need to be considered and given equal attention :

• exposure to complex strategies and competition as the market expands,

• as well as the risk profile of the underlying securities.

• outsource risk relating to service providers The key to effective oversight of risk is the implementation of an effective governance framework which enables the Board to make intelligent risk decisions while protecting the interests of investment fund investors

Overseeing Risk : A Key theme for ETF Boards

Governance and ETFs

A Key theme for ETF Boards and the key to effective oversight of risk is the implementation of an effective governance framework which enables the Board to make intelligent risk decisions while protecting the interests of investment fund investors

21© 2017 Deloitte

Enhanced Accountability

• Investors are reiterating the premise that ETF Boards should be accountable to their shareholders, and are actively seeking engagement on a number of topics such as the composition of the board. Investor engagement is equally important for passively managed funds, which accounts the majority of ETFs, as well as actively managed funds.

• We are also seeing legislation and regulation being used as a tool to enhance accountability. For example, in Ireland the introduction of a Directors’ Compliance Statement under the Companies Act 2014 requires Directors to acknowledge responsibility for ensuring compliance with relevant obligations under the Act to include: tax, serious market abuse offences and serious prospectus offences. This requirement is of direct relevance to ETFs which are established as PLC’s under the Irish UCITS Regulations.

Increased transparency

• Transparency is a key principle of good governance and ensures that all stakeholders are well informed about the fund’s activities, future strategies and any associated risks..

• Disclosure is a key mechanism for promoting the sharing of relevant and timely information to investors.

• The Disclosure Guidance and Transparency Rules require ETFs listed on the main market of the London Stock Exchange (‘LSE’) to include certain corporate governance disclosures, such as description of the main features of the internal control and risk management systems in relation to the financial reporting process.

• In addition, the Financial Reporting Council’s (‘FRCs’) 2014 Code of Corporate Governance (the ‘Code’) introduced changes to disclosure in three principal areas: going concern and longer term viability; risk management and internal control; and remuneration and shareholder engagement. There have been limited updates to the 2016 Code as the FRC expressed views that there is still further work to do regarding enhancing the disclosures relating to the 2014 Code. EFT Boards listed on the LSE, or Main Securities Market in the Irish Stock Exchange, will need to review their disclosure across these areas to understand any aspects that can be improved.

Governance and ETFs

22© 2017 Deloitte

Key takeaways

Governance and ETFs

1

2

3

4

5

ETF Boards need to ensure that they are being provided with frequent and comprehensive regulatory updates, and undertaking training on regulatory matter throughout the year.

To ensure effective understanding of risk they should be conducting an extensive risk review on an annual basis to identify the risks attached to the ETF itself, as well as the risks attached to the servicing or operation of the ETF, and assigning ownership of each risk. These risks should be monitored by the Board regularly through the year.

Board agendas and forward plans need to evolve to cover all evolving Board responsibilities. Topics such as cyber risk and culture should feature as standalone agenda items at least once per year. Alongside this, Boards should be receiving high quality information to enable robust discussion on areas such as risk management, investment strategy, innovation and culture.

There should be a cyber security policy in place that is monitored by the Board on an on-going basis.

Boards should be clear on the type and level of communications with stakeholders and ensure that they have effective mechanisms in place to engage with investors on key topics.

6The quality and level of governance disclosure in Annual Report and Accounts is an area that we believe requires improvement

23© 2017 Deloitte

Tax Landscape for ETFs

24© 2017 Deloitte

ETFs & Tax - The Perfect World

The Tax Landscape for ETFs

Perfect

WorldAccess to

Double Tax

Treaties –

reduced

rates of WHT

/ Exemptions

from CGT

No tax at the

level of the

ETF

No

withholding

tax on

payments

from the ETF

to investors

25© 2017 Deloitte

3. At fund level:

• Tax structuring/advice

• Tax compliance/filing

• VAT

• Country by Country Reporting

1. At investor level: 2. At investment level:

• Monitoring and calculation of capital gains and tax exposure on a daily, monthly or quarterly basis (FIN 48 / ASC 740-10)

• Preparation of transfer pricing documentation and transfer pricing guidelines

• Internal guidance and controls to address and confirm whether an uncertain tax position exists;

• Preparation of a return of income and filing

• Considering the taxation of sale transactions

• Preparation and filing of tax statements to tax authority or custodian

• Stamp duty and other potential tax liabilities

• Tax reclaims

Daily tax Tax registration Annual tax Ad-hoc

Austria - OeKB DDIDistributionreporting

Belgium B-TISRuling upon

requestStreaming (FCP) Subscription Tax

Chile - - - Asset test

Denmark - Application Reportable Income -

France - -PEA / Taper relief

/couponnage-

GermanyAKG I, AKG II,

IG, ZGWM-Daten

DDI §5, §18 and §19, ADDI

Distributionreporting

Italy - -IRRP/ Capital vs.

income splitInheritance

Norway Asset Test - Asset test SSA

Sweden - SKV 2745 KU Forms -

Switzerland - - Muster reporting -

UK Equalisation Application Excess RI Asset Test

U.S. Computation8865 (CTB) / EIN / State

PFIC / K1 / FIN 48

Investor Reporting

ETFs & Tax - The Real World


26© 2017 Deloitte

The reformed German Investment Tax Act Main categories of funds as of 1st of January 2018


Out-of-Scope of the revised German Investment Tax Act – General German tax law

applicable

Tax transparency

Investment funds (mutual funds) – article 1 section 2

of the draft law

Investment funds (special funds) – just open to up to 100 institutional investors (article 26 of the draft law)

Funds under the legal form of a partnership (Non-

UCITS)

Opaque taxation system

No annual & daily

reporting

%-rate for exemption purposes

Daily and annual reporting required

27© 2017 Deloitte


The reformed German Investment Tax Act - Overview

Special Investment Funds

• Basically, Special Investment Funds are subject to German corporate tax like Investment Funds

• A Special Investment Fund can however opt for tax transparency and continue the current taxation system with however significant modifications Attribution of income and expenses to the German

investors on a pro rata temporis basis Stringent requirements as regards the composition of

distributions New definition of the deemed distributed income New rules in relation to the computation of the daily tax

reporting figures Introduction of a new daily tax reporting figure

(Fonds-Teilfreistellungsgewinn)

Investment Funds

Level of the Investment Fund• German and non-German Investment Funds are subject to

German corporate tax with the following types of income German sourced dividends and equivalents German sourced real estate income and gains

• In the case of certain eligible investors, the InvestmentFund can enjoy a tax exemption (complex procedure)

• Full exemption from German corporate income tax possibleif the terms and conditions of the Investment Fund rule thatsolely tax-exempt investors are entitled to invest

Level of the investor• Investors are taxed on (i) distributions, (ii) the pre-lump

sum amount and (iii) on capital gainsfrom the disposal of investment units

• A partial tax exemption rate can apply, depending on the investor type and investment strategy

• The applicability of the partial tax exemption rates dependson the ongoing investment of the Investment Fund pursuantto its constitutive documents

The reform of the GITA introduces two independent taxation systems:

• Investment Funds (e.g. ETFs): opaque taxation system

• Special Investment Funds: option to continue the principle of tax transparency

28© 2017 Deloitte

The reformed German Investment Tax Act


Most important tasks

• Review and revise constitutive documents in order to make sure that partial tax exemption rates apply

• Monitor the portfolio of the Investment Fund in order to make sure that German corporate tax returns are prepared and filed with the fiscal authorities where necessary

• Apply for status certificate to benefit from a reduced German WHT rate incl. management of WHT

• Explore whether or not there is a need to implement a process for the partial exemption of the Investment Fund from German corporate tax

• Review whether or not it is reasonable to launch Investment Funds and share classes respectively which can enjoy a full exemption from German corporate tax

Team involved:

• Sales ;

• PM;

• Legal;

• Operations;

• Products

29© 2017 Deloitte

Brexit – Implications for Asset Managers


• On Brexit, the UK will likely lose the ability to passport management and distribution functions into Europe

• Alternative jurisdictions considered will depend on existing commercial structures and operations – both for funds and corporate group activities

• Tax will likely follow regulatory considerations

Comparison of tax rates and regimes

• Tax authority attitudes

• FS specific taxes

• Rules on employee benefits (e.g. pensions) and remuneration

• Cost of moving vs ongoing tax cost

Selection

• Define optimal final structure

• How to move (CBM, TOGC)

• Substance requirements

• Impact on employees – tax and policy design and reward structures

Implementation

• New intercompany agreements

• Branch / sub registrations

• TP update

• VAT position

• Systems and reporting / compliance

• Employees –implementation of new policy/structure

Adapt

• tax developments and potential impact on business

• CRS / FATCA clearances

• Reacting to tax implications of future business changes

• Ongoing compliant BAU embedded

• Ongoing monitoring of

2017 2018 2019

Exit negotiations

Clarity on exit scenario(e.g. clean Brexit)

EU Exit (in case of no extension)

Art 5017 Jan:PM speech

30© 2017 Deloitte

Brexit – implications for Fund management


Fund Management Companies (ManCos)

• A key consideration will be the ability to sub-delegate back to existing UK functions and exit charges around transfer of contracts

• Current position maybe: UK Funds and UK Mancos

• Future considerations post Brexit: Non-UK Funds and Non-UK ManCos

• Popular jurisdictions considered: Luxembourg and Ireland

• Issues: tax and regulatory consequences

UK and

Foreign Funds

UK ManCo

Pre-Brexit

IM Contract

Post-BrexitLux/Irish

ManCo

Foreign Fund

IM Contract

31© 2017 Deloitte

Dutch Fiscal Investment Institution (FII)


A Dutch Fiscal Investment Institution ETF offers investors a tax

efficient alternative for the FII and retail investors.

1) A Fiscal Investment Institution (‘FII’) is subject to Corporate Income Tax (CIT) (at 0%) - can access most Dutch Double Tax Treaties.

2) Dividends are generally subject to withholding tax (WHT) in the source state. Under most Dutch Double Tax Treaties, the tax rate on dividends or bonds received by the FII is reduced to 15% (e.g. the US-NL DTT).

3) Netherlands-based Fiscal Investment Institutions are entitled to relief for foreign dividend WHT. Such WHT may be credited against the NL dividend WHT due at the time of distribution to shareholders (payment relief) => the FII does not have to pay the deducted WHT to the tax authorities. This results in a profit for the fund and the FII can distribute 100% of the gross received dividends.

4) There is a 15% WHT on the dividend of the NL FII (albeit that this WHT isn’t actually paid to the Tax Authorities due to the aforementioned payment relief). e.g. Dutch private investor can claim credit for this WHT fully with the Personal Income Tax due or can request a (full) refund of the deducted WHT deducted. (The same might apply for EU private investors.)

5) The Double Tax Treaty rates, combined with the payment relief and the tax credit or refund at the private investor level should enable many investors to receive foreign dividends without any tax leakage.

TOTAL

CASHFLOW

Receipts by private investor:

15 tax credit against personal income tax liability for Dutch WHT*

85 nett dividend

100 total nett received

i.e. EU retail

At fund level:

100 gross dividend (85 nett received + 15 'tax refund'** for foreign WHT)

-/-15 Dutch withholding tax

85 nett dividend

Netherlands

Dividend payment:

100 gross dividend

-/-15 foreign withholding tax (NB 15% = applicable Tax Treaty rate)

85 nett dividend

e.g. United States

NL FII (0% CIT)

Private investor

Private investor

US (high) dividend equity investments

* A full credit will be available for Dutch private investors. Please note that if the NL WHT cannot be fully credited by EU (non NL) private investors under the

domestic law of the residence state, it may on the basis of NL law (partially) refundable in NL

** Subject to certain conditions the FII can claim a payment relief for the (foreign) withholding taxes that were withheld in the source country. As a result of this

payment relief, an FII usually does not need to pay the Tax Administration the full amount of dividend withholding tax withheld. The difference between the Dutch

WHT withheld by the FII and the amount to be paid to the Dutch Tax Authorities represents profit for the FII.

33© 2017 Deloitte

SMART BETA ETFs


Smart beta defines a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization based indices. Smart beta emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way. The increased popularity of smart beta is linked to a desire for portfolio risk management and diversification along factor dimensions as well as seeking to enhance risk-adjusted returns above cap-weighted indices

Source: Investopedia http://www.investopedia.com/terms/s/smart-beta.asp#ixzz4gPzg6yHW

• 560 Bn USD invest in Smart Beta Equity ETF (Feb 2017)

• 39 Bn USD in Europe

• 18% growth and 30% CAGR over 5 year

Source: BBH 2016 European Investor Survey

Even if the product if attractiveto investors, they consider it asan add-on to their portfolio butshare is increasing

• 78% still have less than 5%in Smart Beta ETF (85% in2015)

• 19% have between 5 and20% (11% in 2015)

34© 2017 Deloitte

Active ETFs


An exchange-traded fund that has a manager or team making decisions on the underlying portfolio allocation or otherwise not following a passive investment strategy. An actively managed ETF will have a benchmark index, but managers may change sector allocations, market-time trades or deviate from the index as they see fit. This produces investment returns that will not perfectly mirror the underlying index.

Source: http://www.investopedia.com/terms/a/actively-managed-etf.asp#ixzz4gQC8wMTM

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Global Actively managed ETF

Asia Pacific

Canada

Europe

US

Assets (MUSD)

25% annual growth over last 3 years – mainly USIn Europe, 21 ETF of which 2 represent 75%

Very concentrated – 1 provider (Source PIMCO) representing 90% in Europe

TER lower than active mutual funds – 36bps average

Discussion in process on transparency requirements that could limit growth

35© 2017 Deloitte

New trends (COP21, green bonds, SDGs, climate change,…)

Increasing client demands being institutional or individuals ask for SDG

related actions, UNPRI, low carbon products

Reporting requirements on climate change are coming and will develop

UN PRI signatories will have to implement further to principles and demonstrate their effective investments

Return is not less than standard ETF

ESG ETF


Index providers to ensure

Need for better reporting and not more

Harmonization in the standards to ensure comparability

Outputs from various working groups at EU and UN levels are expected

Increasing role of the stock exchanges to promote those investments

36© 2017 Deloitte

Robot advisors and ETFs?


* Estimated forecast

** Assets managed globally by Wealth and Asset Management firms

Expected Growth in Assets under Management (AuM)** Sources: Bloomberg, Deloitte Research

2020*2015

Robo-Advisory($50 bn)

Global AuM ~$75 tn

Robo-Advisory($2.2–$3.7 tn)

Global AuM ~$102 tn

Robo-Advisory($16 tn)

Global AuM ~$137 tn

2025*

+34%

+36%

+432%

+740%

37© 2017 Deloitte

Robot advisors and ETFs?


Active Management Passive Management

• Ongoing data collection and analysis of the market

• Proposes (optional) shifts in asset allocation

• Aiming at outperforming the market

• Based on pre-defined parameters

• Frequently restoring the pre-defined asset mix

• Taking human emotion out of investment-decisions

• Aiming at long-term growth in analogy with the market

~42%* of Robo-Advisors with pure active management

~25%* of Robo-Advisors with pure passive management

* Based on a Deloitte analysis of the Robo-Advisory landscape with over 70 Robo-Advisors in 2016. These figures do not include Robo-Advisors that do not manage portfolios for their client because they only suggest trades on request.

Besides, ~19 %* of Robo-Advisors offer both options. Clients can choose between

active and passive management styles.

• ETF provider are looking fornew way of distribution

Robot provide low costsolution

2 options have been growingsince 2 years:

- Acquiring/partnering with anexisting robo-advisor (BR,Lyxor,…)

- Building its own robo withdedicated team (Deutsche,Charles Schwabb, …)

41© 2017 Deloitte

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may 18, 2017 - deloitte · © 2017 deloitte 2 jack lee director –financial services audit and...

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