Giving Investors A Better ETF Deal

March 20, 2014

Founded in the US in 1975, Vanguard is an exchange traded and mutual fund business. Famed for its low fees and company structure, which is owned by its funds and ETFs, and therefore its investors, it now has assets under management of $2.7 trillion.

However, it has been its growth story in Europe that has been most remarkable. It started making headlines when it brought its low cost ETFs to the market in 2012 and now ranks twelfth in the European ETF market with nine ETFs.

Data from ETFGI also shows that it continues to be Europe’s cheapest ETF provider, which has attracted rising assets.

In the first two and a half months of this year it has seen its assets rise 27 percent from €3.07 billion at the end of 2013 to €3.9 billion today, according to Deutsche Bank.’s European editor, Rebecca Hampson, talks to Nick Blake, Vanguard’s head of retail products to discuss what they are doing that seems to be working so well.

RH: What are you doing at the moment?

NB: In the UK, we are focusing on client advocacy to help investors get a better deal.

The other priority is helping advisors through this second stage of RDR [retail distribution review]. We are starting to see the impact of RDR and this is for two reasons.

One is that the bulk of the firms are starting to understand the fiduciary duty to their end clients. And secondly, there is a move from an advisor-paid world to a consumer-paid world.

RH: How will the retail interest in ETFs grow?

NB: We are spending a lot of time with advisors helping them develop a relationship-centric proposition. We are only able to do this as we have seen several countries already bring in retail-centric regulation. We can learn from the US, Australia and New Zealand.

RH: How do you get the RDR message across?

NB: One of the one ways we get this message across is by doing seminars and even going to retail advisor social scenes and speaking there. While there can occasionally be a bit of resistance to the changing market, generally most advisors are open to the changes and want to know more.

There is definitely an uptick in interest now though. In the 1990s IFAs would get their clients the best product. In the 2000s they spent all their time trying to beat the market, which we still see today. But there is also a shift in this sentiment, and we now see asset allocation being key, along with the cheapest execution method possible, which is invariably ETFs or trackers.

RH: How do you reach IFAs?

NB: All of our business in the UK is intermediated through the IFA channel. Our funds sit on all of the platforms in the UK bar one [Fidelity’s FundsNetwork].

However, this is still something relatively new and this is because we have never paid for distribution or retrocessions and so on: there were no incentives [for platforms to hold ETFs]. Before RDR the big four fund platforms didn’t carry our funds. Now they do.

RH: Which is best – passive or active?

NB: There is a place for both. If you look at the data it shows that roughly 80 percent of the time active managers fail.

We advise advisors to spend time researching active managers. There are some advisors who think that passives are just a commodity, but we do tell advisors to do due diligence to get the best quality manager.

Managers have different approaches to certain elements with passives; for example, tracking, stock lending, excess returns, the history of the products and so on. There has to be a certain quality criteria.

With ETFs there is an added layer of complexity. Regulators are telling people to like ETFs and use them, but then saw this debate two years ago over the safety of ETFs, which did not help the market at all.

Investors seem to be intrigued but wary still.



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