Good morning.
The world’s largest active ETF is going global.
JPMorgan Asset Management launched its $37 billion JEPI exchange-traded fund — as well as its Nasdaq cousin JEPQ — in London, Frankfurt, and Zurich this month. JEPI has been one of the biggest success stories in the industry in recent years and tapped an active management trend that has been the fastest growing segment of America’s $9 trillion ETF marketplace.
Competition is heating up as other US-based asset managers including BlackRock, American Century, and Pacer have also listed similar ETFs in Europe’s $2 trillion ETF markets this year. With ETFs expected to top $20 trillion in assets globally by 2026, according to PwC, they all look like winners at this point.
Inside Wells Fargo’s Bet on Independent Advisors
Wells Fargo’s gamble on indie advisors may be paying off.
The San Francisco-based brokerage has been quietly building out an independent channel that has helped stem an exodus of advisors at the firm in recent years. Launched in 2001, the indie broker-dealer channel called Financial Network — along with a new registered investment advisor program in development — has quickly become the fastest growing segment of its wealth management unit. It’s an effort to compete with the exploding independent movement and hold on to employees that are looking for more freedom with their practices.
“The fastest-growing piece of the wealth management business, when you look at the growth in the number of advisors, is that independent channel,” Wells CFO Mike Santomassimo said at an industry event last week. “It allows us to keep the folks that were moving out of our different channels … [and] we’re starting to recruit people from other places,” he said.
Please, Don’t Go
FiNet is a one-of-a-kind program among wirehouse competitors like Merrill Lynch, Morgan Stanley, and UBS, and may finally be getting the love it deserves. The channel lets independent broker-dealers run their own businesses, while having access to lending, research, and alternative investments through Wells. “That flexibility has helped drive much of their recruiting success,” said New York–based recruiter Mark Elzweig. “Advisors like being in control of their own destiny.”
The company is also building out a fledgling RIA Solutions channel for registered investment advisors and is reportedly hiring a top executive to run the project. In fact, advisors can now elect to be part of the traditional employee channel, called Private Client Group, the FiNet brokerage channel, an upcoming RIA Solutions channel, or a bank advisor channel. “Firms that encourage advisors to choose their own business model have a big leg up,” Elzweig told The Daily Upside.
Wells stopped reporting the number of its advisors in earnings reports in 2023 (as did competitors), but had 12,027 advisors at the end of 2022. Santomassimo reportedly said the firm had roughly 12,000 advisors earlier this year. A Wells Fargo representative did not disclose head count, but said the firm can help advisors from other wirehouses launch independent practices or join existing ones.
Pick Your Own Adventure. So, what’s the rub? Independent advisors are just not as profitable as employee advisors. Since they bear more of the overhead for their independent businesses, they typically earn upwards of 90% payout on revenues. That number is closer to 40% on the employee side. The reason other wirehouses haven’t made the indie option available is simple economics. “They’re afraid of cannibalizing business,” Elzweig said.
FiNet will keep many inquisitive Wells Fargo advisors with the home team and will attract others from outside the firm, according to Elzweig. In fact, some advisors sign on with Wells Fargo’s traditional channel with the intention of “porting themselves over” to the independent channel once their recruiting deal winds down, he said. Call it a mini-breakaway.
Hey, if you can’t beat ’em, open up an RIA.
Why Nvidia in the Dow Is Bad News for Dividend Investors
Nvidia’s entrance into the Dow Jones Industrial Average may just be the end of an era.
The blue-chip stock market measure welcomed two new companies last week, including the sexiest stock alive, Nvidia, and Sherwin Williams. It was at the expense of two long-standing members, Intel and Dow Inc., and sent a loud and clear message to dividend-seeking advisors about the 30-stock index: Your job just got harder.
Not Your Average Bear
Nvidia, as dynamic a force as it is, does not resemble a historic Dow index component. Traditionally, all 30 Dow stocks had average to above-average yields, generally anywhere from 2% to 5% or even higher. That has changed:
- While it was once more focused on income investing, the S&P 500 now yields just 1.2% on average.
- With Friday’s stock swap, there are 11 stocks in the Dow now yielding less than the average.
- One of the stocks in the index, Boeing, doesn’t pay a dividend to investors at all.
So, what’s the big deal? The index that investors consider a basket of “blue chip” stocks has taken a hard turn toward growth, and away from mature dividend companies. It highlights a growing trend toward high-flying tech firms. Advisors should see this as a signal that equity income has become an afterthought. But as with so many aspects of investing, there’s opportunity for advisors with clients that still enjoy getting regular quarterly cash payments out of company profits.
Yield to Pedestrians. Many public companies now treat dividends and yield-seeking investors differently than in the past. Cash flow is increasingly used to buy back stocks instead of paying dividends, which has made them harder to find. But, there are easy-to-access ETFs that can gain exposure to the Dow in a variety of ways.
The most common way is obviously via SPDR Dow Jones Industrial Average ETF Trust (DIA), which has traded since 1998. However, there are other products that strip out some of the lowest-yielding dividend stocks. The Invesco Dow Jones Industrial Avg Div ETF (DJD) accesses the Dow on a yield-weighted basis and sports a payment of around 3% — roughly double that of DIA. There are a handful of other Dow-based ETFs that can help, too.
The Dow’s gradual shift toward a more S&P 500-style index — where yield is largely ignored, and Magnificent Seven stocks (Nvidia is the fourth to join) play a greater role — is an announcement to advisors and their clients: Dividend income can be a priority, but it’s going to become a lot harder to find.