Although financial planners’ exchange traded funds’ (ETFs) usage is high, there is a significant opportunity to get more involved in the ETF market, these were the findings of the BetaShares/Investment Trends Annual ETF Report 2017.
The study, which surveyed 6,000 investors and 500 financial advisers, found that 60 per cent of Australian financial planners recommended ETFs to their clients or intended to do so within the next 12 months.
Those who recommended ETFs typically invested around 17 per cent of new client money in them, with this number set to increase to 20 per cent by 2020.
According to Investment Trends’ research director, Recep Peker, planners could benefit from the unmet advice need as investors required assistance around the ETFs.
“Overall you can see that the proportion of financial planners recommending ETFs are now at the highest level we’ve observed. We do see planner’s enthusiasm for ETFs growing,” he said.
“If you ask people what holds you back from investing in ETFs for those who haven’t done so the number one thing they’d say is I don’t know how to do it, which ETFs to use or how to get access to it. But if you ask financial planners why aren’t you recommending ETFs the number one thing they say is “I’m waiting for my clients to come and ask me for ETFs.’”
“The opportunity [for planners] is to recognise that there is a growing appetite from their customers and being able to position to match that appetite,” Peker stressed.
Furthermore, although the number of investors holding ETFs through self-managed super funds (SMSFs) increased to 105,000, meaning that one in six invested in ETFs, aggregate SMSF ETF investors as a percentage of the total market declined from 38 per cent in 2016 to 33 per cent in 2017.
According to the report, the proportional decline was due to a growth in the number of self-directed investors who utilised ETFs outside of SMSFs.
Additionally, the report found that the underlying profile and demographics of ETF investors changed, with the average age of those who started investing in ETFs in the last 12 months dropping to 42 years old, from 56 among those who started investing in ETFs more than five years ago.
“The combination of the historically low interest rate environment in Australia and low levels of affordability for residential housing is causing millennial investors to think in new ways about investment and wealth creation,” BetaShares’ managing director, Alex Vynokur, said.
“Low cost, small minimum investment size, diversification and convenience are the key factors behind the popularity of ETFs in that market segment.”
BetaShares predicted that the Australian ETF market would reach $40 – $45 billion in funds under management in 2018, growing by at least 30 per cent year-on-year.