ETF popularity to soar with fee-based models

Advisers expect the switch from commission-based selling to fee-for-service will boost their use of exchange-traded funds (ETFs) over the next 12 months, according to new research by Russell Investments.

An overwhelming 84 per cent of brokers and advisers believed they would increase their use of ETFs, while 89 per cent cited the product as suitable for a fee-for-service business model.

Survey results also showed that seven out of 10 brokers and advisers currently allocate less than 5 per cent of their clients’ portfolios to ETFs.

Russell Investments director of ETF product development Amanda Skelly said the results were an exiting indicator of the market’s future growth potential.

“As more advisers embrace the fee-for-service model ahead of regulatory change, investors and their advisers are increasingly attracted to the no-commission, simple and tax-effective structure of ETFs,” she said.

“We expect these benefits will continue to a doubling of the Australian ETF market over the next 12 months,” Skelly added.

The survey also showed that 65 per cent of respondents believed ETFs were most suited to self-managed superannuation funds (SMSFs), while 43 per cent thought they were best suited to Generation Y investors.

Skelly said there was a need for products specifically tailored to SMSF investors that ETFs might be able to meet.