All too often, financial advisers presume a passive fund does not require the same level of analysis as an active fund, as there is not a fund manager 'face' to grill at a meeting. But the reverse is true. ETFs are transparent and therefore, arguably, easier to unpick. Andrew Pereira, managing director at Quadrant Group, is a clear winner for his level of detail when it comes to due diligence and fund selection.
In fact, Pereira and his team stop at nothing to get their questions answered. They'll look at a long list of factors, spread across a 12 page questionnaire that is sent to fund managers, including: firm background, reputation, financial stability, potential conflicts of interest, employee policy, board of directors, depositary, auditor custodian reputation, as well as registrar and administrator's reputation.
The analysis continues at product level: structure risks, size, when it was created, liquidity risks, where it is listed, historic bid/offer spreads, market makers, investor concentration, largest holdings, currency risk, securities lending and index replication.
"Our client security always comes first," said Pereira.
Set up in 1994, the firm has since grown to around 150 clients, and has seen various stages of change in terms of how their service is delivered, which has involved building a central investment proposition around holistic advice and in-house model portfolios of passive funds.
"ETFs can be the ideal animal," he told ETF Report UK, in terms of their tax efficiency and security.
One concern that represents that of many of his peers is the question of maintaining independence in the face of a staunch conviction in the benefit of passive funds.
"We are independent and want to remain so, as we believe it adds value for our clients and partners," he said.
As for the future, Quadrant has a five-year business plan to grow the firm and its number of clients, but plans to do this in a structured and measured way, so that its quality of work behind the scenes is not compromised.