Distribution capabilities will become increasingly important for ETF issuers seeking to attract investors as the market grows, according to industry experts.
Brown Brothers Harriman global head of ETF products and sales Shawn McNinch says rather than simply competing on total expense ratios as the number of ETFs rises, distribution capabilities will become increasingly important for attracting investors.
He says: "The future industry trend is to focus on how to distribute products and how these products are packaged. There are many ETFs, but how are these products combined to satisfy an asset allocation strategy?"
McNinch says there are a number of packaged products that have started coming to market, such as ETFs of ETFs. "It's about taking some of these funds and creating an investment solution instead of just creating passive exposure.
"Investors, along with investment advisers, will focus on how to combine multiple ETFs within a portfolio, and will also need to understand the benefits of utilizing various distribution channels to buy these products."
In comparison with the US, the nature of the European ETF marketplace is fragmented, as there are many exchanges, a wide range of currencies and different regulatory structures, making distribution more difficult, says McNinch.
Nonetheless, the increase of fee-based platforms bodes well for wider distribution of ETFs and greater accessibility for retail investors. "In the US, many investment advisers have embraced ETFs because the fee-based platforms used by the majority of advisers favor the use of low-cost vehicles."
He adds: "ETFs will also be a great vehicle for wrap platforms in Europe because of the low-cost nature of these products."
Nucleus chief executive David Ferguson says: "ETFs seem destined to grow massively over the next few years as greater transparency and focus on the accountability of active managers push financial advisers and their clients down a passive route."
Integral Asset Management (IAM) partner Richard Yarlott says the growth in structures such as ETFs are rarely driven by cost considerations alone.
He says: "Given IAM advises on global asset allocation, the total expense ratio for an ETF is rarely at the top of our list of concerns, and is usually subordinated to the issues of taxation, index correlation, collateral type and so forth.
"ETF providers will differentiate themselves by how clearly such features are presented."
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