Access to ETF model portfolios key to IFA investment, finds Source

May 31st, 2016 | By | Category: ETF and Index News

Independent financial advisers would be more likely to invest in exchange-traded funds if they had better access to ETF-based model portfolios, according to a survey from ETF provider Source.

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Asking 150 UK-based IFAs and discretionary wealth managers (interviewed by Prescient in March), the survey found that IFAs said they would be encouraged to invest more in ETFs if they had greater access to ETF-based model portfolios.

Those surveyed also responded to how they chose providers with performance being the most important (79%), whether the product was available on their platform (66%), and the ability to share relevant materials with clients (47%).

Accessibility to ETFs has been one of the industry’s biggest issues as platforms have been slow to offer the products and some of the main platforms in the fund industry not offering ETFs at all. Model portfolios have become more available on the back of this in the last two years and an increasing number of providers offering the service. Most recently Twenty20 Investments announced it was offering 10 risk-rated model portfolios, built using ETFs, on online platform Parmenion.

Existing users of ETFs had a different view of ETFs, with 71% of those surveyed saying it was the ability of ETFs to offer long-term market exposure as their main reason for using them. This was followed by tactical portfolio adjustments (62%), income generation (40%) and sector rotation (39%).

Costs were also one of the main reasons for using ETFs by nearly all respondents, 89%. Other factors that investors liked were the ‘vanilla’ passive exposure (83%), liquidity (81%), better transparency (78%) and access to hard-to-reach audiences (72%).

Dominic Clabby, Head of UK IFA at Source, said: “More and more financial advisers and discretionary wealth managers in the UK are using ETPs and ETFs for client portfolios given the lower costs, better liquidity and powerful market exposure they provide. This latest research shows that they are using ETFs for a huge range of reasons, from tactical tilts to long-term exposure, for income and sector rotation – indeed, income generation has also become a major reason to use them. This inherent flexibility and adaptability is fundamental to why ETFs and ETPs continue to rise in popularity among UK investment professionals.”

Regional equities were cited as the most commonly used ETF/exchange traded product asset class (77%), followed by global equities (57%), government bonds (53%), equity sectors (49%) and precious metals (44%).

Clabby added: “Income has become a key theme for advisers and wealth managers, given the low interest rate environment, and a new breed of income-focused smart beta ETPs are offering them strong alternatives over traditional funds.”

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