Majority of advisers still do not understand structure of ETFs, says Skandia

Jun 18th, 2012 | By | Category: ETF and Index News

The majority of financial advisers admit that they have little or no understanding of the structure of Exchange Traded Funds (ETFs), according to Skandia’s latest Adviser Confidence Barometer.

Majority of advisers still do not understand structure of ETFs, says Skandia

Graham Bentley, Head of Proposition, Skandia UK.

Over two thirds of advisers indicated that they have little or no understanding of the structure of synthetic ETFs and over half have little or no understanding of asset based ETFs.

Skandia, a retail funds platform operator which specialises in traditional mutual funds, notes that, with a lack of understanding of how they work by both advisers and customers, there is the potential for ETFs to be used inefficiently.

Advisers are clearly wary of this issue, believes Skandia, and this is underlined by the research which showed that over 70% of advisers do not have any clients holding ETFs, and of those who do, the overwhelming majority hold 5% or less of this type of asset in their portfolio.

For those looking to use low cost passive investment solutions, tracker funds seem to be an increasingly popular alternative option. The survey showed that when utilising passive investments in client portfolios, advisers currently favour the use of trackers.

Graham Bentley, Head of Proposition at Skandia UK, said: “The structure of ETFs can be inherently complicated. It is therefore understandable that such a significant segment of advisers have little or no understanding of these funds and for the FSA to be concerned about their use in the retail space. With a general lack of understanding and increased scrutiny over the use of ETFs it is likely that demand for ETFs will remain limited even after the RDR and our research supports this.”

Of course, like all statistics, different polls and different interpretations tell different stories.

Recent data from iShares challenges the Skandia view, for example. According to data it released earlier this year, iShares saw its assets held on six fund platforms reach £746 million at the end of 2011, an increase of 34% over the same period in 2010. Of the platforms, assets held on Ascentric and Novia increased the most substantially, growing 88% and 96% respectively.

Elsewhere, the decision last week by Fidelity to roll out an initial 50 ETFs on its FundsNetwork platform and the recent announcement that Barclays Stockbrokers is to re-launch its intermediary broking service due in part to increased demand for ETFs, is further evidence of the growing appetite for ETFs among financial advisers.

Indeed, Barclays found that, since September 2008, the number of client accounts holding ETFs has increased by 159%, and by 77% comparing April 2012 to April 2009. In the same period (April 2009 to April 2012) the value of ETF assets held by Barclays Stockbrokers clients has nearly trebled (+188%).  Analysis also found the average client trade size has increased by 24% between April 2012 and April 2010.

Either way, the Skandia poll does raise an important issue that ETF providers have yet to fully address – the need for greater education and understanding of the “ins and outs” of ETFs among financial advisers.

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