Mifid II  

EU rules could increase adviser use of passives

EU rules could increase adviser use of passives

Regulatory shifts, including those resulting from Mifid II, will lead to increased scrutiny of fund fees and could cause an increase in the use of passive investments, according to data from KPMG.

The research, carried out in conjunction with BlackRock, comprised a survey of 130 financial advisers, wealth managers and private bankers, with just over half (55 per cent) of respondents stating regulation will be the main driver of change in the coming years.

The objective of Mifid II, which comes into force in January 2018, to improve the integrity, fairness and efficiency of financial markets introduces significant changes to transparency.

It extends transparency from shares to other equity-like instruments such as depositary receipts, ETFs, certificates and to non-equities such as bonds, structured finance products, derivatives and emission allowances. 

The data found than 90 per cent of those questioned use passive investments for equity exposure, while 60 per cent use them for bonds.

Joe Parkin, head of iShares UK retail and wealth at BlackRock, said: “With the UK wealth industry undergoing significant change as a result of technology, changing regulation and fee pressure, advisers and wealth managers are at a crossroads.

"Our clients acknowledge that every investment decision is an active one, and want to know how to achieve the best net-of-fee performance for their clients.

"ETFs and index products will continue to play a key role in building these targeted and cost effective portfolios, and our priority remains providing the support and insight necessary throughout this journey.”

Claire Walsh, an adviser at Aspect8 in Brighton, said she has long considered active funds worth paying the extra charges for.

Bruce Bulgin, partner in the adviser firm Chadney Bulgin in Fleet, Hampshire, said he only uses passive investment strategies for reasons of cost, and added that in many markets it is difficult to find active funds that beat the market.

James Burns, head of the managed portfolio service at Smith and Williamson, which has £220m of assets, said active funds will always account for the majority of the capital in the funds he manages, but added passive investments are there to provide exposure to a particular theme.

david.thorpe@ft.com