Lack of awareness on smart beta

There is a lack of awareness amongst majority of financial planners around smart beta despite the desire for some active exposure in exchange traded funds (ETFs), according to Investment Trends.


Research director, Recep Peker told Money Management only 17 per cent of financial planners said they were familiar with the concept of smart beta.

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“So if the majority of the planner population is not aware of something they can’t get excited about it,” he said.


Quoting a 2016 study on ETFs by Investment Trends, Peker said the number one barrier to using ETFs was that planners and investors wanted some active exposure.


“That is a bit of an opportunity to educate the market on what smart beta is and how it can be used in place of actively managed funds,” Peker said.


The other major barrier to using ETFs was accessibility. While planners were accredited to advise on and recommend the investment vehicle, they said it was difficult to access on approved product lists (APLs) and some platforms.


“So they're saying they want to recommend it [but] they just don’t have the means of recommending it yet,” Peker said.


Head of ETF Securities Australia, Kris Walesby said most advisers thought of it as a yield fund rather than smart beta, which he said they understood well.


However, he said advisers lacked an understanding of more complex strategies such as option-based strategies to attempt to harvest dividends.


“Maybe that’s not understood because it’s more complex and the outcome is non-standard. As soon as you start going into derivatives and things like that the outcomes are not necessarily linear and that’s getting a bit complex.”


Walesby added the Australian Securities and Investments Commission (ASIC) had ensured smart beta ETFs on offer in Australia were simple and easy to understand.

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