Many advisers have acknowledged they would be more likely to invest in exchange-traded funds if they had better access to ETF-based model portfolios.
Platforms have been slow to offer ETFs with some of the main platforms still not providing them at all so that accessibility is becoming a real issue.
Those who have been using ETFs in model portfolios, however, are quick to sing their praises. As well as offering long term market exposure, they are seen to enable tactical portfolio adjustments, provide income generation and permit rotation of sectors.
Increasingly, lower costs are also one of the overriding reasons for using ETFs. In addition, advisers have been impressed by the ‘passive’ exposure, the liquidity and the improved transparency provided. There was also evidence that ETFs have enabled them to gain access to previously hard-to-reach audiences.
Another major advantage is that some platforms (including Hubwise) are also offering access not just to ETFs but fractional ETFs as well. The introduction of these units (of up to four decimal places) allows an exact sum to be invested in an ETF, reflecting what investors can do with unit trusts and OEICs.
This is an attractive proposition as it can provide more opportunity for investment returns. Many traditional ETFs have a minimum investment which can mean that some of a client’s investment may have to remain in cash.
Fractional ETFs, by contrast, allow you to invest all of the investment capital, even if it means they can only afford part of a unit; i.e. if they have £290 to invest and the ETF trades at £100 a unit, without fractional ETFs being available, they would only be able to invest £200 – £90 would remain in cash. Platforms such as Hubwise, however, allow you to ensure your clients are fully invested, as you can buy a part of an ETF for them.
But by no means all platforms are giving access to fractional ETFs which can be somewhat limiting, especially as more and more advisers are wanting to include them, given the reasons outlined earlier.
In today’s marketplace, advisers need to offer their clients the greatest possible choice and fullest investment proposition. Take a good look at your platform, not just in terms of performance but in the technology they are using and whether they are offering a full range of options including ETFs and fractional ETFs.
Although we may not be one of the larger platforms, Hubwise focus on helping advisers provide their clients with a fully rounded investment experience through a combination of factors. This has included developing the technology to be able to offer the flexibility of ETFs and fractional ETFs. Look out for our next article which explores the increased demand for this type of trading in more depth.