The growing appeal of exchange traded funds (ETFs) in Australia could lead advisers to start directing more investments off-platform, unless providers up their IT spend to improve ETF functionality.
That's according to ETF Consulting managing director Tim Bradbury, who said most advisers want to stay on-platform for investments because of the easy reporting and fee collection and will remain on-platform if it's easy to trade ETFs.
There is a continuing shift to "on-exchange" investments like ETFs and direct equities being driven both by self-directed investors such as self-managed super fund trustees and advisers looking to include more listed investments in client portfolios, Mr Bradbury told InvestorDaily.
Advisers in particular are keen to manage costs in the current environment and those in smaller dealer groups are especially keen to shift the margin away from the institutional dealer to themselves or their clients, he said.
"Given advisers 'own' the relationship with their client, the ability to maintain their margin at the expense of wrap platform providers and investment margins is a clear trend," he said.
There is also a shift in the institutional advice channels - which have typically been "anti ETF" for economic reasons - to include more ETF products on approved product lists.
AMP and the now CBA-owned Count Group have made such moves recently and given that those groups represent more than 3,000 advisers collectively, ETFs could be set to further increase their footprint.
Greater education and awareness will also drive the adoption of ETFs across all non-institutional segments in financial services, Mr Bradbury said. As revenues for ETF issuers increase further, after growing by 30 per cent in 2012, a greater marketing spend to further increase awareness will follow.
Regulatory change under the Future of Financial Advice (FOFA) reforms will also drive a shift to more transparent practices in advice, further increasing demand for "on exchange" products.
ETFs fit with the impending ban on conflicted remuneration, as well as with other aspects of FOFA such as fee disclosure requirements, the best interests test and scaled advice, he added.
