Source, one of Europe’s largest providers of exchange-traded funds, has revealed that independent financial advisers (IFAs) have overwhelmingly declared an interest in seeing greater availability of ETFs on the investment platforms they use. A compelling 82% were in support of greater access to the low-cost funds while 28% wished for a significant increase in the number of products available which would spur the growth of the sector.
82% of IFAs surveyed support greater availability of ETFs on investment platforms while 28% thought greater availability would significantly raise the growth of the industry.
While most of the previous growth in the ETF industry can be attributed to demand from institutional investors; the Retail Distribution Review (RDR), which came into effect in the UK in early 2013, has started to change this dynamic.
David Lake, Managing Director, UK coverage at Source, commented: “This year, we have seen our assets under management grow by 20% – $3.4 billion – and we expect strong growth in the ETF sector to continue. The bulk of investment into ETFs in Europe so far has come from institutional investors, but we expect IFAs to significantly increase their clients’ exposure to these products.”
The RDR is a set of rules that aim to introduce more transparency and fairness within the investment industry. The most significant change entailed a restriction on financial advisers earning commissions from fund companies in return for selling or recommending their investment products. This has brought the entire investment industry in line with the ETF sector which had already dismissed the idea of paying commission fees in an effort to ensure costs remained low. As such, IFAs no longer exhibit a bias towards higher costing funds offering commissions (and away from those lower cost funds which don’t, such as ETFs).
Results from the Source survey reveal that 42% of IFAs believe their clients have no current exposure to ETFs, while 49% have stated their clients currently have between only 1-10% of their portfolio invested through ETFs. A significant 34% of IFAs expect their clients to increase their ETF exposure over the next year compared to only 4% whom expect to decrease usage of ETFs over the same period.
The most popular investment style recommended by IFAs when suggesting ETF usage to their clients has been pure tracker funds (33%), followed by active ETFs (15%), smart beta funds (6%) and alternative benchmark funds (5%).
A majority of those surveyed recognised the low cost structure of ETFs as the most significant benefit that the funds provide, while innovation and a wider range of investment opportunities were also stated as benefits, but to a lesser degree of importance.
Investment platforms have undoubtedly taken notice of this shifting dynamic and have been working on adapting their service to answer the call of these IFAs. FundsNetwork, a leading UK services investment platform, has announced their plans to significantly increase their selection of ETFs on offer, with funds from providers such as ETF Securities, HSBC, iShares and Vanguard becoming available from December.
“Our plan to launch a range of investment trusts and broaden the number of ETFs on FundsNetwork later this year sees us responding to this demand and demonstrates our clear intention to support the evolving needs of advisory firms and their clients,” commented Pat Shea, head of FundsNetwork.
They will be fully integrated with the existing range of services and available in the ISA, Investment Fund Account and the FundsNetwork Pension format. FundsNetwork charge a £45 annual subscription fee while transaction costs include a standard service fee of 0.25% as well as a 0.10% dealing fee.
To remain competitive, FundsNetwork’s main ‘fund supermarket’ rivals Cofunds and Old Mutual Wealth will likely be forming their own strategy to increase the availability of ETFs on their platforms.