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.
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.
Aegon’s platform holds ETFs, along with other traded securities such as individual equities, with investment director Nick Dixon stating: “Demand is now rising strongly, driven by advisers and DFMs increasingly using ETFs as low cost components in model portfolios.”
Fundsnetwork responded that it offers a selection of 50 physically-backed ETFs from iShares, ETF Securities and HSBC.
“We are significantly enhancing our platform capability, which will include the addition of ETFs,” the spokesman stated. Although timings could not be confirmed at this stage, it is their intention to build a scalable solution to support a wider range of additional ETFs.
“We have not seen a huge demand for ETF products via the platform to date, but we believe that they can play an important part in the financial planning and investment process for many advisers,” Fundsnetwork added.
Old Mutual Wealth agreed, suggesting there is relatively low demand for ETFs compared to more mainstream fund-based solutions.
“Half of advisers do not recommend ETFs at all and, of those that do, 62 per cent recommend them for less than 5 per cent of their clients,” a spokesman responded, citing research conducted with 550 financial advisers who were not necessarily users of their platform.
“Our focus therefore has been developing fund-based solutions such as Spectrum and Wealthselect that are recommended by the majority of advisers that use our platform. We continue to monitor the range of investment options on the platform in line with demand from advisers.”
While several platforms offer ETFs, only a couple of platforms - Ascentric and Raymond James - are members of the London Stock Exchange, therefore benefitting from intraday trading and not having to pay broker commissions on UK trades.
Cynthia Poole, director of relationship management at Raymond James, added that their securities heritage adds a competitive advantage. “Without realtime trading and your own securities desk it can be challenging and costly to offer ETFs,” she added.
peter.walker@ft.com
