How JPMorgan’s ETF Cross-Selling Strategy Has Made it a Top 10 Player
JPMorgan Chase has become one of the top 10 issuers of ETFs, and for the most part it’s the firm’s own private banking and wealth management clients who own them, according to news reports.
JPMorgan affiliates owned 53% of its ETF assets by the end of 2018, the Wall Street Journal writes, citing its analysis of regulatory filings and FactSet data.
A case in point is a Japanese equity ETF JPMorgan launched in June, which raised $1.7 billion in six weeks and $3.3 billion by the end of the year, helped in large part by JPMorgan’s own private bank and wealth management units, according to the paper.
And while almost every other ETF issuer -- including Charles Schwab, BlackRock, First Trust and Vanguard -- steers its clients to in-house funds, none of the other top 10 issuers broke the 20% ownership mark of its own funds’ assets, according to the Journal’s analysis of SEC filings.
Putting clients into in-house funds can in fact be cheaper: JPMorgan’s Japan ETF is “significantly cheaper” than a similar fund from BlackRock’s iShares, for example, the paper writes. A JPMorgan spokeswoman tells the Journal clients can save up to 60% in fees by switching to JPMorgan’s ETFs from similar funds from other issuers.
Nor is the practice against regulations, according to the paper. Nonetheless, it does raise issues of competing incentives: Firms earn more from clients investing in-house while portfolio managers could think twice about getting out of a fund issued by their firm, which means the funds could be recommended at the expense of the clients, the Journal writes.
“An independent ETF strategist doesn’t have those conflicts,” Rusty Vanneman, president and chief investment officer of Omaha, Neb.-based CLS Investments, which manages $9 billion in asset-allocation strategies that use ETFs, tells the paper. “They have open architecture and more choices.”
But the JPMorgan spokeswoman tells the Journal the firm provides clients with “robust disclosure” in regard to potential conflicts arising from investing in JPMorgan’s managed strategies.