Financial advisers are increasingly outsourcing the management of their client’s investments to discretionary fund managers (DFMs) and this, in turn, is driving the demand for exchange-traded funds. Improving access and providing a greater variety of ETFs on UK fund platforms is imperative to foster this demand.
Fund platforms that can provide DFMs with cost effective exposures through ETFs possess a competitive advantage.
Speaking at a media event held by BlackRock, experts from investment service providers Fidelity, Novia and Brewin Dolphin advised that fund platform providers that can provide DFMs with cost effective and granular exposures through ETFs possess a competitive advantage.
Robin Beer, National Intermediary manager at Brewin Dolphin, commented: “For us, ETFs play a key role in delivering value to our clients. Providing advisers with risk appropriate portfolios for their clients relies on broad investment access and choice to make sure our market views are expressed in the most efficient way. We would like to see a broader group of platforms integrate ETFs into their platform offering alongside other tools to provide greater choice.”
The retail distribution review (RDR) has long been heralded for the boost it should provide to low-cost ETFs through the cessation of commission payments which have historically incentivised advisers to recommend high fee active funds. While advisers in the UK have expressed a good deal of interest in ETF investing, a lack of knowledge and difficulties accessing the products on current fund platforms has been a headwind.
Large fund platforms have begun to respond to this. Fidelity’s FundsNetwork, one of the largest fund platforms in the UK, recently extended the range of ETFs on the platform to support the evolving needs of advisory firms and their clients. Meanwhile Novia has partnered with Winterflood to reduce the cost of trading ETFs on its platform, after witnessing a 70% increase in the number of investors and advisers selecting ETFs as part of their investment portfolios over the past year.
Stuart Welch, Head of Brokerage at Fidelity International, commented: “Despite the pervading mindset in much of the industry about the need for ETFs on platforms, we are seeing growing demand from advisory firms and private investors, who are looking to include ETFs in their overall portfolios – in most cases alongside mutual funds. As we are keen to provide advisers and investors with what they need to manage their portfolios, we took the decision to expand our existing ETF offering later this year.”
Bill Vasilieff, Chief Executive at Novia, believes rise in use of ETFs is set to continue as trading costs fall. “We need to break the cycle of misinformation in the market about ETFs: they are simple tools that can be used to provide access to specific markets that are not available in the unit trust and OEIC market. We are actively positioning our platform for the advisers and investors looking to build diversified portfolios, and believe that ETFs will be increasingly important in a world where investors want greater transparency and choice,” said Vasilieff.