Use trackers, not ETFs: Skandia

Graham Bentley, head of proposition for Skandia, said the company’s latest IFA Barometer showed that more than two-thirds of advisers have “little or no understanding of the structure of synthetic ETFs” and more than half had “little or no understanding of asset-based ETFs”.

He added: “With the FSA having already expressed concerns about the complexity of ETFs and the lack of understanding on how they work by both advisers and customers, there is a danger of these funds being used when they should not be.

“It is likely demand for ETFs will remain limited even after the retail distribution review and our research supports this.”

Skandia’s research also showed more than 70 per cent of advisers have no clients holding ETFs, and of those who do, the overwhelming majority hold 5 per cent or less in their portfolio.

Mr Bentley said: “ETFs remain a niche, passive investment suitable for a limited number of clients. For those looking to use low-cost passive investment solutions, tracker funds are not only cheaper than ETFs but simpler for advisers and investors to understand.”

Peter Cooper, director of North Yorkshire-based Cooper Johnston Associates, said: “We use tracker funds but will start using ETFs now that they are available on platforms, provided they are cheaper.

“Many IFAs don’t understand ETFs because they are new. There isn’t that general knowledge base yet. However those IFAs who are using them do understand them and from next year ETFs will become more widespread.”