State Street, which sold the first exchange-traded fund in 1993, is falling flat in its bid to win back market share in the ETF industry by wooing advisors to retail investors, with many advisors saying the bank doesn't do enough to support them.
State Street, which lost its long-time No. 2 spot among ETF providers in the first quarter to Vanguard Group, does less than its competitors in giving them the data, investment tools and ideas they need to improve their wealth management practices, several advisors to the fast-growing retail ETF market said.
"State Street is a notable laggard in advisor support," said Larry Glazer, a managing partner at Mayflower Advisors, which oversees $2 billion in State Street's hometown of Boston. "Given State Street's scale and first mover advantage as an ETF pioneer, they have abysmal advisor support. It's almost a laughing matter in the industry."
The assessment comes more than a year after State Street began a multi-year effort to bolster its advisor support organization and combat a widening loss in market share, by adding staff, poaching senior executives from rivals and trimming fees.
The bank ranked fifth among ETF providers in how loyal advisors are to their brand, according to a survey last year of almost 1,500 advisors by Cogent Reports, a Cambridge, Massachusetts research firm.
"I'm not surprised some of these things haven't caught up," said Jim Ross, the head the ETF business for State Street Global Advisors (SSgA), the asset management arm of the bank. "It takes time to build."
The stakes are becoming clearer. Rival Vanguard's ETF assets had an organic growth rate of 26 percent in 2014, compared with State Street's 10 percent. Since 2011, State's Street's U.S. market share has dropped about 5 percentage points to 20 percent, while Vanguard has gained 6 percentage points to 21.8 percent.
As a result, earlier this year and for the first time, Vanguard moved past State Street to No. 2 in total U.S. ETF assets with $478 billion, compared with State Street's $458 billion. BlackRock's iShares ETFs rank No. 1 with $1.1 trillion in assets globally.
Financial advisors hold the key to penetrating the retail market because they are among the heaviest users of ETFs in constructing investment portfolios. ETF assets are projected to double to $5 trillion by 2020, according to a PwC survey.
In 2013, SSgA decided to make a substantial investment to reinforce its advisor support organization. Since the beginning of 2014, for example, it hired 45 people to increase the size of its distribution organization to 138 employees, said Ross, who declined to give a specific figure for what State Street invested.