Inside ETFs Europe: 5 Things Advisers Want Most

And no, it’s not the smartest algorithm in a smart beta ETF

Editor, Europe
Reviewed by: Rachael Revesz
Edited by: Rachael Revesz

The memory of our annual Inside ETFs Europe event in Amsterdam is still fresh in my mind as over 600 delegates streamed into the Hotel Okura between 8-10 June. I listened to and chaired all kinds of interesting debates over those three days, on topics ranging from central banks to bonds to smart beta, yet the most important lessons I learnt were the wants and behaviours of our audience – financial planners.

Here are what I consider to be the five most important lessons that I learnt from this year’s event.

1) Advisers want to know more

When Defaqto’s head of insight and consultancy, Frank Potaczek, as moderator of a panel at the conference, asked the audience: “Who here is a financial adviser?” I held my breath.

Luckily, most of the room raised their hands. This is testament to years of hard work in educating financial advisers about ETFs and is a sign of their eagerness to learn more, or to solidify existing knowledge. It surely won’t be long before advisers in the mainstream channels are offering more low-cost and passive portfolios to clients.

2) Advisers want to keep it simple

It is all too easy on our popular smart beta panels, crammed with the industry experts, to jump straight to the pesky algorithms, or demonstrate the correlation of risk factors, or discuss the concept of risk premia – but what advisers want to know is how to use smart beta, and where it fits in their portfolio.

The quest for simplicity and practical advice was most evident on the Liquidity Risks panel on the final day, when an adviser asked: “How do you know if an ETF is liquid?” The panel replied that fund size, average trading volume and bid/offer spread were very important factors. And yet to think we had spent five minutes discussing on and off screen liquidity…

3) Advisers want to hear the evidence

Journalist and broadcaster Robin Powell thought he might have a hard job to fill a room at 8am to talk to advisers about the scam of active investment. Yet there was strong interest for this session, and after the sample screening of his documentary, “How To Win A Loser’s Game”, there followed a lively Q&A discussion. Advisers, for the most part, still use active mutual funds and investment trusts, but they are open minded and willing to hear the alternatives.

4) Advisers prefer holistic financial planning

Holistic financial advice and behavioural finance were strong themes this year. U.S.-based robo adviser Betterment’s CEO Jonathan Stein spoke about the fact that those nearing or during retirement are often willing to take more risk than might be expected. BehaviourGap’s Robert van Beek stressed his views on the fixed income panel that we shouldn’t obsess with the actions of central banks or alter out portfolios just because we suspect the Federal Reserve might tinker with interest rates. Taaleritehdas Wealth Management’s Samu Lang said on the macro panel that, despite Greece constantly being in the headlines, it matters very little to advisers’ long-term portfolios.

The broad theme was that advisers should be asking their clients the right questions and assessing their risk appetite, and leaving the rest to diversified and strategic portfolios.

5) Advisers focus on risk above all else

A client’s risk appetite and the risk/reward of a portfolio are themes at the forefront of the regulator’s, and therefore the adviser’s, mind. This topic came to light during the Finding Income panel. In an era of low yielding bonds, surely advisers will push ahead into higher yielding assets like Master Limited Partnerships, emerging markets and commodities?

But that is not the case. In fact, one of our live polls found out that 100 percent of respondents worry about the risk/return ratio of their portfolio while they are on the hunt for yield. Furthermore, only 22 percent would employ an ETF for income-seeking areas of the market.

Rachael Revesz joined in August 2013 as staff writer. Previously an investment reporter at Citywire, she has a background in writing content for retail financial advisors and has covered a wide range of subjects in finance. Revesz studied journalism at PMA Media, which has since merged with the Press Association. She also holds a B.A. in modern languages from Durham University, as well as CF1 and CF2 financial planning certificates from the CII.