Co-founder @ Source
“Be honest, be fair, do the right thing.”
Ted Hood is a financial services industry veteran with a distinguished career in the ETF industry. Ted is a co-founder of exchange-traded fund specialist Source that he helped to launch and ultimately ran for six years, taking it from zero to nearly $20 billion of assets during that period of time. Ted shares his story with Jobs in ETFs below.
JE: Please tell us about yourself and your experience.
Ted: I have spent nearly 20 years in finance and finance related roles. Initially as a lawyer, then as a developer, distributor and manager of financial products and transactions and, most recently, as a founder and CEO of an innovative ETF provider. At Morgan Stanely I was given responsibility for European product development. In that role I became very involved with the firm’s activities in the index replication arena. As more investors embraced the use of passive instruments, we looked at ways to expand our product offering. This ultimately led to discussions with Goldman Sachs and several other banks about the development of an open architecture ETF platform that could leverage the trading, hedging and distribution capabilities of the broker dealer community. The result was Source. An ETF provider that I helped to launch and ultimately ran for six years, taking it from zero to nearly $20 billion of assets during that period of time.
JE: What would you advise to someone who wants to start their own ETF business? What does it take?
Ted: If I were thinking about launching an ETF business today, I would ask the simple questions that anyone launching a business should ask: Do I have a USP, is it valuable, viable, defensible and sustainable? Finally, am I in a position to deliver that USP? If the answers are all yes, you may be on to something!
JE: What is the best bit of advice you’ve received in your career?
Ted: Rory Tobin (now at SSGA), who used to run iShares in Europe, gave an interview once in which he essentially said that being an asset manager was like walking up to a complete stranger and asked them to leave their wallet with you for a while. That observation has always struck me as very powerful. The need to earn and merit the trust and confidence of your investors every single day. I think everyone in financial services should take that observation to heart.
JE: If you can give advice to those who are just starting in the ETF industry, what will it be?
Ted: Remember what Rory Tobin said about wallets! Also, hopefully you will have a long career. Everyone you do business with will reappear at some point down the road. Be honest, be fair, do the right thing.
JE: What has been the highlight of your career? wants to start their own ETF business? What does it take?
Ted: Just starting in the ETF industry. Understand your industry. ETFs have a lot of very positive attributes but they are not the solution to everything. Understand all the alternatives for our investors and where and how your product delivers value.
JE: The growth of ETFs has been phenomenal. What would you say are the most significant changes in the ETF space in the past few years?
Ted: Without question the most significant change over recent years has been fee compression. Great for investors but a challenge for ETF issuers and other participants in the ETF universe (market makers, index providers, asset services, etc.). There is some risk that reduced margins results in excessive consolidation, reduction in innovation and, more importantly, a reduction in the marketing and education efforts that have helped so many investors to understand the power of low cost investing and sensible asset allocation.
JE: Is there anything that you believe everyone in this industry should be working towards?
Ted: For Europe, we still need a consolidated tape and everyone in the business should be supportive of that outcome.
JE: What do you think is the “next big thing” – or what should we all keep an eye out for?
Ted: We still haven’t really seen the investment industry achieve break-through use of technology. There are still material inefficiencies, particularly in the costs associated with the distribution of investment products. It is inevitable, though. Innovation and technology will root out those inefficiencies and investors will benefit.