The Future of Financial Advice (FOFA) reforms have the potential to drive the growth of the local exchange-traded funds (ETF) market if the experience in the United States is any guide to what may happen, according to an industry executive.
“Between 2002 and 2009 there was a transition in the US from a traditional commission-based broker to a fee-based broker that built wrap programs and put products in that were basically a lot more independent and didn’t require or result in payment of fees within that product,” State Street Global Advisors (SSgA) global head of ETFs Jim Ross said.
“That trend in the US really drove ETF growth.”
Statistics compiled by SSgA showed over this time the number of ETF providers jumped from just under 500 in 2002 to around 2750 in 2009, while the assets held in the ETF market rose from just under US$200 billion to around US$1.1 trillion for the same period.
“I look at Australia and I see the same growth trend. I think the ETF market is positioned today to be the extreme growth market over the next five to seven years,” Ross said.
“I see trends here that really make me think of where we were in the US in the late 1990s and early 2000s,” he said.
Ross pinpointed the FOFA reforms as being a key ingredient to ETF growth because he thought there would be greater demand for low-cost, independent products in client portfolios as a result.
