The conclusion from a survey of 1,300 financial advisers is that 46% of advisers have never used ETFs within their clients’ portfolios, while of those that have three-quarters have only used them for a small percentage – less than 10% – of their client base.
Graham Bentley, head of proposition at Skandia, said: “Given the risks and market concern over ETFs it is good that advisers have not poured all their clients into them.”
He continued: “Not all ETFs are the same. Some ‘vanilla’ ETFs invest in the underlying index they are tracking, the assets are ring-fenced, and there are clear advantages to holding a transparent, low cost investment. It is the ‘synthetic’ ETFs that are causing the real concern.”
The seam research found that 80% of financial advisers who were aware of the Financial Stability Board’s report on ETFs agreed with its findings around the risks and complexity associated with the products.
One of their key concerns is synthetic ETFs and the fact they do not hold any physical assets but are instead comprised of asset swaps.
“Given the rapid growth in ETFs and the counterparty risk involved, it is not surprising that the regulatory bodies are heavily scrutinising the ETF market,” according to Bentley. “Lessons from the past are at the forefront of their minds, and preventing another financial meltdown will be a priority.
“The Regulator will also be focused on preventing another miss-selling scandal and seems to be stepping in early to ensure all the product risks are clearly defined.”
