Platforms struggle to keep up with ETF demand

Platforms struggle to keep up with ETF demand

Platforms are struggling to cope with the rapid increase in demand for passive investments, especially exchange-traded funds, according to an outsourcing provider for the industry.

Brett Williams, managing director of the SEI Wealth Platform, told FTAdviser that many platforms are unable to handle ETFs at all, while many of those that do, can only price them once a day.

“This ruins the spread on ETFs and given their constant re-pricing throughout the day, makes holding them on platforms kind of pointless,” he commented.

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Last year finished on a high for ETFs in Europe, with December’s total sales topping £39.5bn and 2014 seeing £217bn of inflows overall.

In February, Nucleus reported that 60 per cent of portfolios on its platform have some element of passive investment, up from 50 per cent the previous year.

David Ferguson, founder and chief executive at Nucleus, said that most platforms have their background in fund trading and yet many still do not offer any trading in listed securities, including ETFs.

“Those that do either offer it as a standard part of their listed security trading while others have kind of bolted on an ugly solution which just about does the job,” he explained, adding that most advisers using ETFs in portfolio construction are doing so to get strategic exposure to certain asset classes rather than time the market.

Mr Ferguson expects most platforms will move to a position in which they can support daily trading and for the market leaders to offer users the option of aggregated daily or twice-daily dealing points and live trading.

“There are some platforms who cannot trade ETFs at all – they are probably slipping behind in a number of areas and ETFs might be a second or third-order issue for them. While all platforms should offer access to ETFs, I’d be delighted for them to continue to fail to deliver.”

Adam Laird, head of ETFs at Hargreaves Lansdown, said that its ETF assets have grown more by 40 per cent in the last year and more than doubled in the last three years, with surveys showing it is generally wealthier and younger investors tend to be more interested in them.

He explained that they will quote investors a live price and apply commission at between £7 and £12. “Access remains a challenge across the industry, but advisers I’ve spoke to say they are essential for investors.”

Malcolm Kerr, executive director for Ernst and Young’s financial services division, told FTAdviser that for many of the smaller, independent platforms, ETFs and trackers have been the highest selling funds over the last couple of years.

However, several of the larger, insurance-backed platforms were started up exclusively selling mutual funds, which paid their way through discounts offered, meaning they were less receptive to offering index funds and only had daily pricing.

“Passives are a problem for some platforms, especially given the amount of time and resources having to be dedicated to technology upgrades,” Mr Kerr added.