The exchange-traded fund industry is one of the fastest-growing areas in finance and investment, and while it seems to have the wind at its back it does face a headwind of sorts when it comes to attracting young talent.
First, let’s address the tailwinds. The amount of assets in ETFs have eclipsed those invested in hedge funds globally for several years now, and Morningstar data from year-end 2018 shows that passive funds (including both ETFs and mutual funds) held more assets among U.S. large-cap stocks than did active funds. That’s significant because it confirms the ascendancy of passive strategies, which should benefit low-cost ETFs. And these positive numbers are a reassuring sign for young people entering the ETF industry today.
The problem is that despite the sector’s positive growth, there’s a skills gap among new recruits—especially among those in sales and marketing.
We’re not referring to those in more senior positions, the experienced and knowledgeable people who have been in the industry since its inception a quarter century ago. But there are far fewer young people entering the ETF sector than, say, the investment banking or active fund management fields. Yet a 2018 survey from Jobs in ETFs found that 80 percent of hiring managers prefer to seek talent with a background in the ETF ecosystem, while only 12 percent said industry experience was not essential.
These results highlight the specialized nature of the ETF skills that employers in the industry want. Younger candidates need to not only have good interpersonal skills and the ability to build up client relationships, but they also need a good degree of technical knowledge about how an ETF is constructed, how it operates and how it trades.
These areas are not explored in depth by the traditional exam bodies for young people who want to work in the investment field, and topics such as how ETFs trade are not necessarily required for salespeople who work, say, in the active fund management sector where selling funds comes down to performance and the skill of the fund manager.
Getting back to interpersonal skills, these are crucial when working in ETFs because salespeople are not just selling ETFs—they are educating investors about using these funds in their strategies and talking about where the funds fit into portfolios. That education is imperative: Although the ETF industry is growing fast, its global asset base of roughly $5 trillion is small vis-à-vis the overall investment landscape. And the education aspect is especially relevant to the U.S., where most ETF assets are held by retail investors and investment advisors (the opposite is true in Europe).
In addition, fee wars among ETF providers mean it’s even more important for them to have economies of scale if they want to make a profit. And that means there will be more pressure than ever on sales and marketing teams to grow their reach and distribution. You can have the most innovative index and ETF in the world, but it goes to waste if nobody buys it.
The hope is that ETF providers can secure additional distribution channels and broaden their reach to institutional investors and pension funds. If so, new candidates could help propel that trend.
How can new and young candidates impress their potential employers and get a foothold in this industry?