Platforms pressured over products

Search supported by
Platforms pressured over products

Experts believe investment trusts and exchange-traded funds (ETFs) could move further into the mainstream after the FundsNetwork platform announced plans to offer more of the products.

From December, FundsNetwork will extend its range of trusts and exchange-traded products (ETPs).

The platform had limited its offering to the Woodford Patient Capital Trust, owner Fidelity Worldwide Investment’s five trusts and around 60 ETFs.

Following the changes, advisory firms and their clients will have access to roughly 50 trusts, from providers including Aberdeen Asset Management, Baillie Gifford, Invesco Perpetual and JPMorgan Asset Management.

FundsNetwork will also expand its ETP range with an extra 20 products from providers including ETF Securities, HSBC, iShares and Vanguard.

A spokesman for the platform said a further expansion of the service would be dependent on demand. Nevertheless, the planned launch of a full brokerage service next year will provide greater access to listed securities, such as trusts and ETPs.

The announcement marked the first concrete move to offer such products by one of the three large fund supermarkets – FundsNetwork, Old Mutual Wealth and Cofunds.

Panmure Gordon analyst Charles Murphy said: “This is good news for the investment trust industry because one important distribution channel has opened up its product line.”

He added the changes could offer a similar boost for ETFs, but warned platforms might limit their ETP ranges in order to avoid potentially riskier products.

Mr Murphy acknowledged the move “will put pressure on the other platforms to follow suit”, but further action at Old Mutual Wealth and Cofunds remains some way off.

Cofunds marketing head Stephen Wynne-Jones said: “Demand for ETFs and trusts remains low – less than 3 per cent of platform assets under administration are typically via these investment types – but we recognise the importance of more esoteric solutions in particular circumstances.

“Therefore, we continue to explore options as to how to provide this service, but have higher priority projects at the current time so can’t confirm any timescales just yet.”

Old Mutual Wealth said in a statement: “While we continue to experience low levels of demand to provide access to trusts, we recognise there are advisers who would appreciate the additional functionality.

“We therefore expect to deliver access as part of our significant project to update our platform technology, which we are undertaking in partnership with IFDS.”

However, a study by Source suggests demand is increasing among advisers (see below), and sales of trusts and ETFs on smaller platforms have been growing.

Association of Investment Companies chief executive Ian Sayers, who dubbed the FundsNetwork changes “a positive step forward”, said adviser platform purchases of investment firms had trebled to about £600m a year in the wake of the RDR, with the number of advisers recommending these companies now exceeding 1,000.

James Budden, director of the marketing and distribution clients department at Baillie Gifford, claimed the move could help change perceptions among advisers, who in some cases viewed investment trusts as “alternative assets”.

He said: “One of my frustrations is how people look at trusts as some kind of alternative asset. These are mainstream funds and sit in the same world as Oeics.

“They are collective funds, but have a slightly different structure. I would like to see them used more and more by intermediaries.”

Advisers expect clients to increase ETF exposure

Some 82 per cent of advisers believe ETFs need to be more widely available on the platforms they use, according to research from ETP provider Source.

A survey of 103 advisers found 34 per cent expected clients to boost their ETF exposure in the next year, although 42 per cent said current client exposure was non-existent.

Of those advisers who had recommended ETFs to their clients, 33 per cent had promoted pure trackers, while 15 per cent had suggested active ETFs, 6 per cent advocated smart beta ETFs and 5 per cent endorsed products using alternative benchmarks.

Platforms ‘should be doing so much better’

A recent report by The Lang Cat consultancy – provocatively titled ‘Platforms are dead’ – suggests the industry requires a significant overhaul if it is to effectively meet users’ requirements.

The study said everything from back-office to front-office functions required an overhaul.

Boss Mark Polson said: “We see a market that could, and should, be doing so much better, but which at the moment is struggling. This worries us.”

He said demand from advisers would increasingly come to define the industry.

“Continued survival will be driven by the scale of demand, rather than the attributes of supply,” Mr Polson said.

“The supply side needs to recognise this uncomfortable truth and evolve rapidly in response.

“The first signs of these changes are already starting to appear.”