Gordon Rose: Under the RDR legislation, the fee structure for fund distribution will have to change. But who will benefit the most, low cost ETFs?
Hello and welcome, my name is Gordon Rose, ETF Analyst with Morningstar and I'll be joined today by Freddie Findlater, Head of Adviser Platforms at The Platforum. Thanks for joining me.
So with the ending of commission payments and then the switch to advisory charges, low cost ETFs are looking more and more attractive. How is that reflected on the platforms at the moment?
Freddie Findlater: Thanks, Gordon. Yeah, I think the ETFs are really set to benefit going forward. Adviser charging in particular is going to see costs of advice being pushed up. So, advisers are doing anything they can to try and bring costs down for clients and ETFs are clearly a good way of doing this. We have seen in our research the emergence of groups like Vanguard and Dimensional joining the likes of iShares and being more and more predominant in advisers’ portfolios.
And I read a report recently that suggested that iShares' ETFs, across six platforms, sales have increased by other 34% to somewhere in the region of £740 million. So, there is undoubtedly, there is a big drive towards ETFs at the moment.
Rose: Okay. You mentioned Vanguard and iShares, but what other ETFs are currently available actually for investors on the platforms?
Findlater: Well, ETFs have been available on platforms for quite some time. People often talk about them as if they are a new sort of product. In the wrap platform space, so, I am talking about the likes of Acentric AXA and Novia, Nucleus, Standard Life, Transact, et cetera. They have been available for some time.
Those that operate that unbundled pricing structure, i.e., they're not relying on fund manager rebates for their charges. The interesting areas that we could see growth are these, the former fund supermarkets. So, the likes of Fidelity, Cofunds and Scandia, who are now making ETFs available for the first time, and these are the big market players here. So, I think that's really where the focus will lie for ETF providers in the future.
Rose: You mentioned just Fidelity opened their platforms now for ETFs as well. How did the landscape change over the last years in terms of ETFs’ availability and where do you think that's going from here?
Findlater: Well, as you mentioned, I think the former supermarkets are going to be really important and Fidelity, yes, have launched some ETFs. I should say that it is only 50 at this stage. So, it's a trickle rather than a flood, but these three players in the wider market context account for 60% of the current UK platform assets. So, they’re big three groups.
Likewise, the number of users on these platforms is in the tens of thousands, rather than the thousands or the hundreds, as it is for some of their wrap competitors. So, I do you think that will be a big area, certainly from an ETF provider's perspective, in terms of distribution. They are going to be really focused on these guys and making sure they’ve got that exposure.
I think from some of the existing wrap models where providers have had their ETFs available on platforms for some time. I think, we are starting to see traction there and I’ve spoken with a number of providers and seen some reports recently that suggest that sales in some particular ETFs have increased 80% to 90% year-on-year. Likewise, a number of advisers using ETFs on that particular platform had doubled.
So, there is real evidence of traction here. But I do think from over an overall market perspective, if you look at an investment split of a typical platform today, you are likely to see that there is still the vast majority is going into unit trusts or into mutual funds.
ETFs still account for between – if you’ve got 1% or 2% you're doing quite well, the majority is less than 1%, the highest we saw was 6.8%. So, there is still a lot of work to be done there. How can ETF groups help? How can people help? It primarily is down to education. There is lot of work to be done in terms of filling that education gap. For advisers they are not as confident as using ETFs as they are using unit trusts.
But also there is a demand element to it. Platforms are demand-driven businesses and if they don't get approached by their IFAs to put more and more ETFs onto platforms, they won't do it and at the moment I don't think they're seeing that level of demand and that's sort of reflected in Fidelity making only 50 rather than hundreds available on the Funds Network platform. So, I think there is still a lot of work to be done.
Rose: Yeah. Thank you very much, Freddie. I guess we can say that ETFs are available for quite some time already on the platforms but there is still a lot of room to grow. Thank you very much for watching.
