Advisers fail to understand ETFs, finds Skandia

18 June 2012 | By Henry Brennan

The results of the group’s latest Adviser Confidence Barometer reveals that more than two-thirds of advisers say they have “little or no understanding of the structure of synthetic ETFs”, while more than half said the same about asset-backed products.

Graham Bentley, head of proposition at Skandia, says: “The structure of ETFs can be inherently complicated. It is therefore understandable that such a significant segment of advisers have little or no understanding of these funds and for the FSA to be concerned about their use in the retail space.

“With a general lack of understanding and increased scrutiny over the use of ETFs it is likely that demand for ETFs will remain limited even after the RDR [retail distribution review] and our research supports this.” (article continues below)

He adds: “One of the benefits that have often been touted about ETFs is that they are a low cost passive solution. However, there are other ways for investors to access low cost passive investment solutions; a very effective way to do this is via tracker funds.

“These funds can not only be cheaper than ETFs but also are much simpler for both advisers and investors to understand making them a potentially much more appropriate passive solution for the retail space.”

More than 70% of advisers consequently have no clients who hold ETFs and those who do find ETFs comprise, at most, 5% of portfolio assets.

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