ETF Adviser: Platforms Are The Only Barrier

An adviser who builds portfolios including exchange traded funds (ETFs) for his clients has called for better platform infrastructure as it remains the “only barrier” to his increasing his use of ETFs.

Mark Hayward, an independent financial adviser from Westminster Wealth, a firm with around £450 million assets under management, told ETF.com that most advisory platforms are simply not designed to deal with ETFs.

Hayward sits on his firm’s investment committee and either allocates clients assets to a discretionary fund manager (DFM) or to his firm’s in-house portfolios. Both solutions sit on advisory platforms, including Aviva, Transact and 7IM.

He criticised the vast majority of platforms for charging high commission – up to £25 to buy a listed security – which eats into smaller clients’ assets.

“It’s really frustrating if you have a client that wants granular exposure, as ETFs offer so many products and you can usually find what you want,” he said. “The range of passive OEICs [open-ended investment company] is so much smaller, you’re never going to find a specific passive OEIC.”

He added that not having ETFs available to choose from as an independent adviser was like trying to allocate assets “with one arm tied behind your back”.

The news follows our survey results, released last month, which show that 23 percent of respondents find broker commissions a deterrent for choosing more ETFs on platform, while 38 percent blame the lack of genuine intraday liquidity as a reason to avoid these vehicles.

“If the plumbing was better, maybe we wouldn’t hold the Vanguard Equity Index tracker [and buy an ETF instead]. But having said that, in my experience OEICs tend to be cheaper than ETFs as ETFs can cost up to 45 basispoints whereas many trackers cost around 15 bps,” said Hayward.

Many passive index providers have recently undercut ETFs in their pricing, to as little as 0.07 percent for a UK equity tracker. However, for the likes of a fund tracking the MSCI North America index, the BlackRock OEIC costs 0.08 percent per annum while the iShares ETF costs 0.40 percent.

Hayward said many DFMs opt for passive OEICs as they also use platforms for their model portfolios, and smaller clients might feed in as little as £500 per month and would therefore lose out significantly in trading fees. This is the same reason that Hayward doesn’t use ETFs for smaller, in-house clients.

“Most platforms are not efficient to buy and trade ETFs,” he concluded.