Over the years I’ve lost count of the number of misguided claims about the impact of the rise of ETFs on financial markets.
One article the other day caught my attention, however, not for its substance but rather its misunderstanding about the important role of financial advisers in helping their clients navigate some of the biggest money decisions in their life.
Most importantly, these comments missed the point that ETFs provide the perfect complement to what advisers need to deliver for their clients – which is a convenient, transparent and cost-effective portfolio implementation tool.
How ETFs can help the advice sector
I’ve been around for long enough and worked with enough financial advisers to see the value that a good adviser brings to their clients. These people add value in many ways, from investment advice, through to life insurance and estate planning and everything in between.
They help many Australians through these questions and deliver value every day. Perhaps the biggest learning while working for growing ETF manager, Betashares, is that clients know good advice when they see it and will stick with their financial adviser when they find the right one for them. The related trend I’ve also witnessed is the symbiotic relationship between ETFs and financial advisers.
While they’re relatively new when it comes to Australia’s investment landscape, ETFs have added an enormous amount of value to financial advisers since their launch in Australia in 2001.
Since our launch over a decade ago, Betashares has invested heavily in a growing team to support financial advisers utilise ETFs in their client portfolios. As a result, we see financial advisers use ETFs in many different ways for their client portfolios, whether it’s part of a separately managed account or individual ETFs to build a core equities portfolio, gain exposure to fixed income or express tactical views across asset classes, investing styles or
thematic megatrends.
At their heart, ETFs allow advisers and firms to implement investment ideas in a convenient, simple, transparent and cost-effective way. In fact, the link between financial advice and ETFs has never been clearer.
While it is true that self-directed investors are increasingly using ETFs in their portfolio over other forms of investing, it’s equally true that financial adviser adoption is also increasing. 2023 research from Investment Trends and Betashares shows that 64 per cent of financial advisers recommend ETFs to their clients, back in 2012, this number sat below 30 per cent.
Despite the number of advisers recommending ETFs having doubled over the past decade, we think it will continue to steadily increase in the coming years. The rise of ETFs has been well covered over the years, but it’s worth outlining why this number continues to grow and the clear link with good financial advice.
Why is demand growing?
First of all, since the passage of the Future of Financial Advice (FOFA) laws and the Financial Services Royal Commission, ETFs have benefited from the legislated move away from conflicted renumeration that previously dictated the direction of advised money to investment products.
The move away from this business model rightly ensured that investment products would be chosen on merit. It’s no surprise that adoption of ETFs amongst advisers became far more commonplace in this climate as they have allowed financial advisers to improve returns net of fees across more parts of their client portfolios by allowing cost effective implementation of investment ideas.
As a result, in an environment of increased regulation of financial advisers, simple, cost effective and transparent tools like ETFs are helping financial advisers achieve efficiency and scalability at a critical time for their future. In any case, we’ve noticed that the advisers who embraced the spirit of these changes via the adoption of ETFs are the ones who are thriving in the post Hayne world.
Further, due to innovation by the industry, ETFs are allowing financial advisers to improve scalability within their practice. ETF-based managed accounts have allowed financial advisers to improve the save time on client administration, investment manager selection and portfolio management.
These attributes assist financial advisers by improving efficiency, client service and transparency. In many cases, managed accounts, often powered by ETFs are allowing advisers to take on more clients (as well as expand their practices to include lower balance clients) than would otherwise be scalable.
We expect adoption of these solutions to continue to grow as more financial advisers recognise the benefits of increased scalability for their practices as well as improved investment and portfolio construction decision making.
By utilising ETF-based managed accounts, advisers are able to focus on the things they know best, their clients and their businesses, which are the two important ingredients for their future outlook.
Finally, we’re witnessing growing investment to improve the financial advice sector by ETF managers. Last year, here at Betashares we launched a new practice development offering to support financial advisers and planners with a range of tools, information and content for use in their practices.
The goal of this service is to share the knowledge and expertise we’ve built over a decade of helping Australians progress on their financial goals. Since its launch last year, we’re seeing meaningful adoption of this service by advisers who are leveraging these purpose-built resources to help grow and scale their practices. It should come as no surprise that the advisers most willing to expand their horizons via practical and tailored education have a bright future.
There’s no shortage of questions about the future of financial advice in Australia, but at the end of the day, its future is something to be optimistic about. The growing need for advice, the looming great intergenerational wealth transfer, as well as the daily need for good financial advice are all megatrends that will be supportive of the industry. In this climate, convenient and cost-effective investment products, like those contained in our growing range of ETFs, will be a useful tool to help financial advisers meet their client needs and thrive into the future.
Damon Riscalla is national head of practice development at Betashares
