ETF boom sees investor demand outstrip advice supply
Financial advisers have the opportunity to extend their advice offering with only around a quarter of exchange traded funds (ETF) investments coming off the back of advice despite a 46 per cent increase in the number of investors in that space.
According to data gathered as part of the BetaShares/Investment Trends ETF Report released on Friday, financial planners are involved in only 27 per cent of investment decisions related to ETFs, a number which has been steady for the past five years.
However Investment Trends senior analyst, Recep Peker, said while investor numbers are set to continue their rapid growth the number of advisers looking to provide advice on ETFs was also set to climb for the fourth year in a row.
Peker said the number of ETF investors grew by an annualised rate of 46 per cent to 146,000 in the year to October 2014 and exceeded forecasts by around 20,000 investors with estimates of the number of investors reaching 184,000 by the end of 2015.
He also stated that investors claimed their main barriers to using ETFs was lack of knowledge and uncertainty about using them in a portfolio which represented a sizeable opportunity for advisers.
"These are mainstream investors and are bang on average for ETF balances which means they want more help, information and education around ETFs," Peker said.
He said the level of planners currently providing advice and using ETFs in client portfolios in 2014 was 40 per cent with a further 19 per cent intending to do so in the next 12 months, with these combined figures nearly 10 per cent higher than the previous year and growing steadily over the past four years.
According to Peker planners are more attracted to the low costs of ETFs than investors with 89 per cent of surveyed planners indicating low cost as the top reason for using ETFs compared with 53 per cent of investors surveyed.
BetaShares managing director, Alex Vynokur, said that in the post Future of Financial Advice (FOFA) environment ETFs have been able to compete on a level playing field with managed funds as the advantages of commissions have been removed from the latter.
He said the FOFA changes had exposed a preference for low cost, liquid investments that removed any structural bias that was built into the product and advice models in use within the advice sector.
"As financial planners move to fixe price advice there is less incentives available and we have seen a general trend to simpler products that offer a diversified approach," Vynokur said.
The report was based on responses of 10,530 investors and 768 financial advisers on their experiences and usage of ETFs.
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