Passive investing is gaining greater traction in the UK. As the market grows and develops this could benefit advisers, who will have a greater choice of lower cost investment solutions in the post-RDR world, according to independent financial research company Defaqto.
Defaqto suggests that there is frustration among the adviser community over the performance and cost of many active funds and, when combined with the cost pressures imposed by regulation, product development from passive fund groups and recent entrants to the market, all points to the growth of passive investments.
A few years ago the choice for people seeking to track an index would have been limited largely to tracking the FTSE 100 or FTSE All Share.
However, according to research carried out by the Investment Management Association (IMA), the proportion of investments put into non-UK equity trackers increased from 19% to 30% between 2005 and 2010, while 51% of the 81 tracker funds that the IMA recently reported on are invested in a spread of indices.
A key issue for any adviser looking to steer clients towards a passive investment solution is accessibility. The evolution in distribution of UK retail funds and ETFs means advisers and their clients are able to access passive funds and ETFs readily through numerous types of products that all carry different cost and tax implications.
Adrian Gaspar, Senior Consultant at Defaqto, said: “There are many advantages to passive investing and some will argue that the removal of stock picking risk and the reduction in relative volatility, costs and research, while servicing requirements, means that many advisers are effectively de-risking their clients’ portfolios, and as consequence de-risking their business.”