Bringing up ETFs

As predicted, the move to a fee-based remuneration landscape has already meant that the majority of financial advisers are having a radically different kind of conversation with their clients.

Many of those who stubbornly refused to even contemplate talking about child trust funds with their clients, no matter how important, are now finding it necessary to do so.

But, most of all, the real transformation is taking place in the exchange traded funds space, which is witnessing a global inflow of millions of pounds.

According to a study by Cerulli Edge, the total ETF assets under management grew from $310bn in 2004 to $750bn at the end of last year, a compound annual growth of nearly 25 per cent.

European ETFs came in at about two-fifths of the US, which accounts for 72 per cent of global ETF asset and at a time when the global financial markets were collapsing.

It is now clear that ETFs will form a central part of a balanced portfolio and, any financial adviser who does not discuss ETFs with clients, run the risk of facing a future claim for bad advice.

ETFs have relative high liquidity, low cost and flexibility, the key aspects of cautious investments in a volatile climate.

New providers are constantly entering the market, with Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley have recently launched Source, an ETF platform, which they claim will deliver better efficiency, greater liquidity and reduced counterparty risk.

IFAs not familiar with ETFs have a very short time in which to come up to speed.