Key takeaways from the ICI’s General Membership Meeting

Insights from Jonathan de St. Paer

Last month, I attended the Investment Company Institute’s (ICI) General Membership Meeting in Washington, DC. For those unfamiliar, the ICI is an association that represents regulated funds (e.g., mutual funds, exchange traded funds, etc.) in the United States. Their annual General Membership Meeting provides the fund industry with a forum to discuss key issues, hear from regulators and policymakers, and connect with peers.

This year was particularly exciting because it was my first sitting on the Board of Governors – the group that discusses major industry trends, and helps set ICI policies and oversees its activities. Sitting on the Board allowed me to observe the event and its content from a new vantage point.

I noticed a few recurring themes among the keynote sessions, panel discussions, and hallway conversations at this year’s event. Below are my observations and thoughts about some of the topics our industry finds most pressing and interesting.

Zero Fees

Since we’ve been deliberate about keeping costs low for Charles Schwab Investment Management (CSIM) investors, I’m typically asked about whether we have plans to bring product fees to zero. This year was no exception.

At CSIM, we consistently evaluate our products, monitor market activity and listen to investors to better understand their needs and inform any future steps we may take. With that said, many investors we’ve spoken with remain skeptical of zero fees, and prefer to have greater transparency into how asset managers are paid.

As my ninth grade economics teacher drilled into my head, there’s no such thing as a free lunch. With zero fee products, there is less transparency around how asset managers earn a profit. For this model to take off broadly among mutual funds and ETFs, investors would need to be comfortable with a more opaque relationship. That may be the case at some point, but so far, most investors are telling us they prefer the current level of transparency.

At the end of the day, the difference between zero and 2-3 basis points may be small in terms of economics, but it greatly differs from a philosophical standpoint.

Product proliferation

Someone at the event asked me if I thought our industry had reached maturity. With the large number of products that launch each year, this person had a hard time wrapping his head around how anyone could make sense of them all. I wonder the same thing!

At CSIM, we consistently hear that the sheer number of funds launched every year creates confusion for even the most sophisticated investors and advisors. They say increased product proliferation has made it harder to navigate how to construct a sound portfolio. As it becomes harder to compete in the ‘core’ product category, newer products tend to be more complex, contributing to the confusion already felt by many.

Take “strategic beta” – today’s poster child for product proliferation – as one example. Sixty-two strategic beta ETFs launched, accounting for 36 percent of all ETFs that came to market, in the 12 months ended February 2019.1 There may be some valuable strategies included in this group, but the sheer number of them has made it difficult for most investors to navigate.

At CSIM, we are extremely thoughtful about each of our products, and are careful to only launch products that serve major investor needs. When it comes to smart beta, we choose to keep things straightforward, and offer Fundamental Index mutual funds and ETFs.2 We believe these strategies have an intuitive construct and complement our lineup of traditional market cap weighted products.

When it’s all said and done, product development and innovation in asset management have led to powerful tools and important solutions that can benefit investors. Yet they have also created a complex landscape that causes confusion and can make decision making more challenging. As an industry, we would do well to ensure that the products we launch can provide a genuine benefit for, and be easily understood by, investors.


Asset managers – whether they are searching for efficiency, alpha, or both – are eager to take advantage of innovations in technology. I can’t go to an industry event these days without seeing several tech-themed panels on the agenda.

Through many conversations, I’ve observed that firms like ours are largely focused on innovations we can leverage today – initiatives such as automating manual processes, integrating additional data sources into our investing process, and implementing machine learning. These are designed to help enhance client outcomes, free up employees’ time so that they can focus on higher value activities, and reduce the occurrence of operating errors driven by manual processes.

The world is going through a rate of change that will only continue to accelerate – regulation is changing, client expectations are shifting, and technology is evolving – so it’s important to have a forum like the ICI General Membership Meeting to learn about, discuss and debate key issues with the rest of the industry. I hope the conversation doesn’t stop there, and that attendees brought key takeaways back to their teams for further discussion and dialogue. I know my team and I will continue to reflect on many of these topics.


Jonathan de St. Paer
President and Chief Executive Officer
Charles Schwab Investment Management

About the author

Jonathan de St. Paer