ETF investment to grow post-RDR as cost pressures mount
IFAs looking to retain independent status will be forced to consider ETFs and this could add to popularity, says Defaqto.
Cost pressures that will be visited upon financial advisers following the implementation of the Retail Distribution will force more to recommend investment solutions based around low-cost exchange-traded funds, according to a report by Defaqto.
The RDR will also provide an additional boost to the exchange-traded funds market, as it will be necessary for advisers to consider the suitability of ETFs if they wish to deem themselves independent, Defaqto say in the study.
The publication suggests that the availability of ETFs through wraps and platforms is also a key ingredient to successful retail distribution in the UK as most advisers who see value in ETFs are likely to be managing their clients’ investments through either a wrap or a platform.
Defaqto’s data indicates that 21 out of the 27 wraps and platforms that they research allow investments into ETFs. They are also available on 102 out of 111 ‘pure’ self-invested personal pensions.
Adrian Gaspar, senior consultant at Defaqto, said: “With continued investor frustration at the performance of active funds and increased usage by fund managers and discretionary fund managers, it is clear that ETFs are here to stay and will continue to grow assets under management in the UK.
“In addition, the RDR has and is likely to continue to act as a catalyst for the growth of the ETF sector.
“The liquidity, variety, low costs and dealing flexibility make ETFs very attractive to advisers, particularly those advising clients with more sophisticated investment aspirations or objectives.
“However, due diligence is still very important before recommending any ETF to an investor.”