IFA Platforms Remain Major Hurdle For ETFs

Advisory fund platforms are a “major shortfall” when it comes to providing exchange traded funds (ETFs) to financial planners, according to portfolio managers at an industry event today.

Speaking at the ETF Portfolio Summit, Christopher Aldous, managing director at Charles Stanley Pan Asset, said two prohibitive factors for accessing ETFs via platform are the cost of dealing and the overall fee.

“If somebody is foolish enough to have a regular contribution of £1000 to their [ETF] portfolio you can have 15 to 20 transactions, each costing around £15, you will blow 30 percent [of your money]. No one would do that so we have to have non-ETF solutions,” he said.

“These issues will only be resolved slowly as platforms become more sophisticated,” concluded Aldous.

Shaun Port, CIO at discretionary wealth manager Nutmeg, said getting execution right means extra performance.

“You can’t underestimate how important execution is for running managed portfolios of ETFs. Particularly with fixed income […].”

Allan Lane, managing partner at Twenty20 Investments, added that selection of ETFs on platforms is limited. He also criticised the way trading is set up on platforms: “[…] maybe you put the order in on Monday and it’s maybe rebalanced on Wednesday. That slippage is a major shortfall.”

He also blamed “cookie-cutter” solutions on platforms, like model portfolios with fixed risk ratings, which are in his view too “hands-off” for today’s volatile market environment.

Alan Miller, founder and CIO, SCM Private, said that one of the largest IFA platforms still doesn’t offer ETFs, yet the Financial Conduct Authority requires platforms to be whole of market.

“It’s surprising the FCA hasn’t addressed how IFAs could use a platform [Cofunds] that doesn’t have ETFs on it,” he said.