An untapped opportunity for UK Advisers
Are you making use of exchange traded funds (ETFs) as part of your clients’ portfolios? If not, you could be missing out on another way to diversify your clients’ investments.
What are ETFs?
Essentially, ETFs are investment funds that hold multiple underlying assets such as bonds, stocks or commodities. They’re wrapped into a fund, listed on the stock exchange and made available through investment platforms.
According to new research by Citywire, these are commonly used in the US, but less so in the UK market – they’ve recently found that ETF’s make up just 7.4% of model portfolio service (MPS) holdings in the UK. [1] This is in stark contrast to the US, where they account for over half (54%) of underlying MPS assets, according to data from global financial services company Broadridge Financial Solutions. [2]
What is the relationship between ETFs and MPS?
An MPS portfolio (or Managed Portfolio Service) is a diversified and expertly managed investment portfolio, offering a range of strategies designed to meet specific investment goals and risk levels. Many DFM’s, such as our partner Copia Capital, will offer this service through an investment platform like Wealthtime.
View all Wealthtime DFMsThe benefits of ETFs
ETFs offer a range of features that can make them a valuable addition to client portfolios:
- Cost-efficiency: ETFs provide access to both active and passive strategies at a typically lower cost than their traditional mutual fund equivalents.
- Transparency: Most ETFs offer real-time pricing and disclose holdings daily, which can simplify client conversations about their portfolios.
- Market access and diversification: ETFs allow efficient entry into specific markets as well as broad exposure to sectors, regions or asset classes. This flexibility helps advisers tailor portfolios to client needs and makes it easier to diversify across geographies, industries or themes without buying multiple securities or funds.
- Liquidity: ETFs trade throughout the day, enabling tactical portfolio adjustments when required as well as easy rebalancing.
ETFs could offer distinct advantages for some advised clients. They can play an increasingly important role in advised portfolios.
Nick French, Commercial Director
The importance of platform selection
While in many instances ETFs can enhance efficiency and reduce costs, choosing the right platform is vital. When looking at ETFs on platform, you should consider:
- Breadth of access: The ETF universe, particularly on the active side, is still growing, with some way to go to catch up with the range offered by traditional mutual funds. Choosing a platform with access to a wide range of ETFs provides greater flexibility when constructing client portfolios.
- Fractional share trading: ETF share prices can be high, and when only whole shares are available it can leave client money sitting in cash. Platforms that offer fractional share trading make it possible to allocate smaller investments, avoiding the issue of uninvested cash.
At Wealthtime, we offer comprehensive ETF functionality, including access to over 400 ETFs within MPS as well as fractional dealing. Check out some of our other platform features below.
Explore our platform evolutionLooking ahead
Mutual funds remain the mainstay of MPS, and this is unlikely to change in the near future.
However, ETFs can offer distinct advantages for some advised clients. As demand for cost efficiency and transparency grows, they are likely to play an increasingly important role in advised portfolios. We’re ensuring we provide the right functionality so you can confidently incorporate ETFs into your portfolios alongside mutual funds and choose the best investment option for your clients.
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Interested in adding ETFs to your client portfolio? Speak to an expert member of the Wealthtime team.
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This article is intended for regulated financial advisers and investment professionals only. Wealthtime does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
[1] https://citywire.com/wealth-manager/news/why-mps-investors-will-need-to-keep-waiting-for-etfs-on-platform/a2472451
[2] https://www.wealthmanagement.com/investing-strategies/rias-see-over-5-jump-in-model-portfolio-assets-in-the-first-quarter?
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