Australian financial advisers will become their clients’ active fund managers in less than six years through the use of exchange traded funds (ETFs), a US expert said.
ETFs are listed funds which can be bought and sold like shares and are designed to mimic the performance of an index like the S&P/ASX 200 or the Dow Jones Industrial Average.
“2006 it was the first year (in the US) that the new money coming into ETFs from advisers and retail clients exceeded that of institutions,” altavista independent research president Michael Krause said.
“Part of what was driving that is the proliferation of wrap accounts triggers advisers to think more carefully about fees they are paying and so they have to take a much more active role in asset management.”
Australia was probably less than six years away from reaching a milestone like that, he said.
The value of ETFs in Australia has risen from $1.5 billion from January 2007 to nearly $3.9 billion in January 2008, according to the Australian Securities Exchange (ASX).
Morgan Stanley expects the value of ETFs globally to hit $2.1 trillion by 2011, from the current $726 billion.
“The greatest opportunity for advisers is that it firmly puts you back in the drivers’ seat,” Krause said.
“No longer is it about picking a manager at a listed investment company and essentially turning your clients your over to that manager and hoping that they will deliver a decent return for that client.
“You can allocate your assets very cleanly and efficiently . that in turn makes you more valuable to that client.”
