View more on these topics

Advisers put off ETFs over liquidity and fee concerns

Stock-Stockmarket-FTSE-700x450.jpgAdvisers are holding back from investing in ETFs due to concerns about liquidity and platform fees, new research from Platforum shows.

Passive funds account for 10 per cent of assets on adviser platforms, but 9 per cent is in tracker funds, while just 1 per cent is in ETFs, the report about passive funds on platforms reveals.

In contrast, ETFs form a larger part of assets on D2C platforms, where investors hold 3 per cent in the exchange-traded products as part of an 8 per cent allocation to passives.

Most advisers allocate less than a fifth of assets to passives, while 15 per cent invest more than half of client portfolios in index funds and ETFs. Only 6 per cent are entirely invested in active funds.

Platforum research director Miranda Seath says there has been little year-on-year increase in ETFs on adviser platforms.

Seath says: “Many advisers continue to see the ETF structure as higher risk than mutual funds, citing liquidity concerns as a barrier to investing.”

The report, Tracker Funds and ETFs, shows 29 per cent of advisers state higher transaction costs for ETFs on platforms is a barrier to them recommending the exchange-traded products.

However, platform functionality is improving when it comes to ETFs.

Seath says: “There is no difference in transaction costs between ETFs and funds on 7IM, Alliance Trust Savings, AJ Bell Investcentre, Ascentric, and Raymond James.

“Novia, Hubwise and Allfunds, the largest European platform, now offer fractional trading of ETFs: helpful for investing smaller, regular amounts into ETFs or for portfolio re-balancing.

“And Aegon will make ETFs available to former Cofunds users this year with Old Mutual Wealth following suit once it replatforms. Indeed platform issues appear to be less important to advisers in 2017 than in 2016: 50 per cent of advisers now see no barrier to investing in ETFs on platform.”

The research also found that advisers who did recommend ETFs to clients had more diversified portfolios than those who don’t and were more likely to hold directly-held securities, investment trusts and VCTs and EISs in portfolios.

Investors under the age of 40 were more likely to hold ETFs than their older counterparts regardless of their portfolio size or household income, the report reveals.

Recommended

Investment
1

Are criticisms of ETFs justified?

Passive funds have come under attack as having the potential to cause the next market crash due to their structure and the way they are managed. Baillie Gifford partner and fund manager Charles Plowden has recently condemned  ETFs as “dumb money” and compared them with the complex packaged trading instruments – such as collateralised debt obligations […]

Global regulator to launch probe into ETF systemic risks

The International Organization of Securities Commissions is to expand its probe into the ever-growing ETF industry as systemic-risk fears mount. The Madrid-based regulator launched an investigation earlier this year looking at liquidity risks for mutual funds and index-linked funds, such as ETFs. Early next year the organisation is expected to discuss its recommendations to promote […]

5

Top Baillie Gifford partner warns ETFs are ‘dumb money’

Baillie Gifford partner and fund manager Charles Plowden has condemned exchange traded funds as “dumb money” and warned they are likely to lead to another crash like the one seen in the latest global financial crisis. The manager of one of Baillie Gifford’s flagship funds, the £1.5bn Monks investment trust, compared index funds with the […]

FCA logo glass 620x430
9

Another IFA pulls DB transfers after FCA review

Advice firm Bartholomew Hawkins has stopped its defined benefit transfers following a meeting with the Financial Conduct Authority. According to the FCA’s register the company must “immediately cease all regulated activities relating to defined benefit pension transfer business for which the firm has Part 4A permissions”. The register says the firm ceased work on DB […]

Healthcare regulation amalgamation predicted for Gulf states

While Dubai is leading the way in terms of legislating for expat healthcare in the Gulf, Qatar, Abu Dhabi and others are watching and learning – that’s according to Jelf International’s director of international services, Doug Rice. He believes the pace of change in the Gulf states will continue and that some level of unified healthcare system will be introduced across the region.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment