WealthStack – Yes It Was Hot, But Also Very Cool!

I just returned from the inaugural, sold out, WealthStack Conference in Scottsdale, Arizona, sponsored by the folks at Ritholtz Wealth Management and the Informa conference team that puts together Inside ETFs and other great ETF conferences during the year. Yes, it was pretty hot outside with 100+ degree temperatures. But inside, there was some pretty hot stuff going on as well, as wealth management and the latest technology collides. While I could not attend all the sessions, including the WealthStack Showcase, here is a recap of the highlights from my wealth advisor/ETF-centric perspective. 

M&A, Succession Planning, and Sustainability

There were demos of all the new bleeding edge tech platforms, as the wealth management industry realizes that the key to sustainable success is offering differentiated, client-centric solutions across four main pillars: 

1.   Portfolio Management

2.   Financial Planning

3.   Client Relationship Management (CRM)

4.   Client Portal (24/7 online access)

On the heels of the acquisition of mega-advisory firm United Capital by Goldman Sachs, there was plenty of talk about succession plans and M&A. Indeed, United Capital’s founder Joe Duran was a speaker and his newly combined firm a sponsor at the conference. RIA-firm serial entrepreneur and AdvicePeriod founder Steve Lockshin described how he has used robo advisory and automation to transform and grow his business in a sustainable manner. The key takeaway is that today’s advisory firms are building sustainable businesses, scaled with technology, and intended to outlast the individuals that run them and the clients that they serve. 

New Influencers and Social Media

Not surprisingly, at a conference with shining blogger examples such as Reformed Broker Josh Brown and StockTwits’ Howard Lindzon, there was discussion on how to “transform” your business model using new tools such as social media, video, and podcasts. There was even a podcast booth at the conference for the rising number of industry podcast stars to “cast” from. 

I chose the word “transform” instead of the classic term “grow”, because clearly what is going on here is indeed transformative beyond establishing one’s “Street cred”. There was talk about finding your voice, joining and enhancing the conversation, but most importantly, being authentic. Clearly the “New Influencers” on the “Building Your Advisor Brand on Social Media” #Fintwit panel have moved beyond just trying to build their business and are channeling themselves, their energy and expertise, and the things they are passionate about into their business. 

ETF Pundits

As a product developer of ETF indexes, my favorite panel was “The Battle of the ETF Pundits” with ETF industry gurus Tom Lydon (ETF Trends), Eric Balchunas (Bloomberg Intelligence), Matt Hougan (Inside ETFs/Bitwise), Ben Johnson (Morningstar), Elisabeth Kashner (FactSet), Dave Nadig (ETF.com), and Todd Rosenbluth (CFRA). 

Asset Flows

Despite the fact that fixed income ETF’s comprise only 20% of ETF products, they are seeing 2X the flows this year. The only risk appetite in the market right now is on the fixed income side. That being said, given that ETF’s are something of a “Swiss Army Knife” that can be used for many purposes including shorting, flow data cannot be taken at face value. 

Smart Beta

The verdict for Smart Beta is still out. While Bloomberg’s Balchunas says $40b in Smart Beta flows YTD and $80b last year “ain’t bad”, FactSet’s Kashner remains critical of Smart Beta products due to the cost. “Mostly beta, with a little bit of smart.” And yet there have been some Smart Beta products finding success this year included low volatility ETFs and Innovator’s new defined outcome series. 

Fixed Income

There were additional revelations on the fixed income side as the battle between passive and active implementations rages on. There are two decision points in fixed income: credit and duration. Increasingly the question is: are advisors willing to outsource active discretion by proverbially, “breaking apart” the AGG (Barclays Bloomberg Aggregate Bond Index)? 

ETF.com’s Dave Nadig pointed out that “short duration chasing” has been terrible for advisors this year and they would have been better off in the longer duration AGG. The best outcomes this year came from lengthening duration as opposed to shortening it, a bet that most advisors got totally wrong.

ESG

The hype for ESG remains strong, although Tom Lydon asked the panel tongue-in-cheek “Is there demand?” While there have been mega-flows to ESG this year from large institutions, it has become a very low margin business from an issuer perspective. 

Thematics

The panel seems generally supportive of thematic ETFs as a means to get targeted exposure to fledgling industries such as cannabis (Cannabis ETFs were on display at the conference pool and handing out shades). “Better to own a basket of these names instead of throwing the dart.” Bloomberg Intelligence recently developed a “Thematic Capture Score” to test for thematic purity. It was also mentioned that thematic ETFs are a great tool for hedge funds to gain exposure to segments of the market like cannabis that are hard to borrow. 

New Active ETF Structure

The debate rages on between active and passive, given the rise of the new non-transparent active structure. While this new structure does offer Institutions better liquidity, it does come with a price, as managers forfeit the right to close the fund should capacity constraints arise, as is often the case with small cap mutual funds. Still there is still more money in active mutual funds than passive, so that means there are a lot of products that could potentially benefit from the lower cost, more tax efficient ETF structure. 

Bitcoin ETF

Matt Hougan, his Bitwise runs a Crypto Fund, noted that the custody issues have been solved with companies like Fidelity now offering insured custody. There are institutional flows into other investment vehicles holding crypto in the absence of a Bitcoin ETF structure. Daily volatility in bitcoin has dropped from 10% to 3%, which also helps pave the way for an ETF product. Hougan referred to VanEck’s new 144A structure as a “Frankenfund” alternative for GBTC, a tax inefficient, closed-end Bitcoin fund owned in ARK ETFs. 

Passive Is A Bubble?

Given a recent quote in a Bloomberg article by “Big Short’s” Michael Burry comparing index funds to subprime CDOs, it is not surprising this was a topic at the conference. The panel members countered his arguments noting there is “plenty of price discovery”. Index funds are not the only way to invest in equities and passive funds often take in flows during market downturns. Just because you are in a liquid, passive vehicle, doesn’t make you more likely to panic. And finally, as Morningstar’s Ben Johnson stated “popularity is not a bubble”. 

Here is a link to Ritholz’s Ben Carlson, mike-drop response debunking the “Passive is a Bubble” myth https://awealthofcommonsense.com/2019/09/debunking-the-silly-passive-is-a-bubble-myth/

Other Notable Sessions:

•  Author and Economist Allison Schrager, An Economist Walks Into a Brothel. Lots of interesting anecdotes as you can imagine. They handed out her book.   
• Private investing gurus Howard Lindzon, Morgan Housel, and Tripp Shriner on “What the Smart Money is Betting On” as it relates to Fintech.   
•  “Liquid Alts: What You Need to Know.” Did not want to own liquid alts, except for Granite’s Gold ETF (BAR), after this discussion. 
• Highlights from the standing-room only Wealth Track: “The Future of Fixed Income”, “Using ETF’s to Solve Client Problems,” and “How to Scale Your Investment Strategy” with Dan Cupkovic of the SWAN ETF and Phil Bak from Exponential ETFs. 

Bitcoin is not for Buying a Cup of Coffee

There were so many amazing sessions, but another one of my favorites given I helped create a blockchain index (BLOK-50), was Matt Hougan’s Breakfast Workshop: “Why Crypto? And Why Now?” 

The session made me glad that I skipped the bus ride to “The Mint” nightclub the previous night (sorry DJ Josh). Matt clarified that crypto is for moving money over the internet, NOT buying a copy a cup of coffee at Starbucks. Think of it as Venmo and PayPal squared. He cited the example of a Bitcoin Whale that was easily able to move $1 billion of Bitcoin almost instantaneously for virtually no cost. And then of course there are the capabilities for Smart Contracts. I am going through this case study today trying to sell some concert tickets (what was I thinking getting tickets to a concert festival this weekend post WealthStack). It is all about handling mistrust. As I am handing over the tickets, the buyer needs to be either handing me cash or on their phone Venmo-ing. 

This is an exciting time for Bitcoin and crypto as much progress has been made in the last year. The custody issue has been solved. There are now a number of insured custodians and a thriving futures market. As the market becomes regulated and institutionalized, crypto vol is coming down. Matt Hougan had a great chart to put crypto volatility in perspective, throwing up an untitled chart for gold price volatility that the audience assumed was the history for Bitcoin. 

Conclusion

One of the reasons I attend conferences like WealthStack is to network with industry colleagues and meet the end user of the products I create, who like myself, are wealth advisors trying to do the best for their clients. But I came away from this conference particularly excited about the intersection of finance and technology and how the two can work together to provide the best products, outcomes, and client experience. See you next year WealthStack and thanks to all for a great conference experience. It may have been hot, but the conference could not have been any cooler!  

Here is the conference site link: https://finance.knect365.com/wealth-stack/

Disclaimer: If I missed mentioning your session, it was because I had to answer an urgent email, take a coffee break, or field a text request for money from one or both of my teens at home. None of this reporting is investment advice.