German stock exchange to offer intermediaries commission on exchange traded funds
he German stock exchange is to offer UK intermediaries trackers with an annual fee of around 0.5% with commission on top.
Deutsche Borse, which is to start marketing in the UK before the end of the year, will also allow intermediaries to white label the products to their client base.
The Borse is one of the main centres for Exchange Traded Funds (ETFs) and is now looking to increase interest in them among UK investors.
ETFs are stock exchange-listed open-ended funds with an NAV and a share price. They are designed to track the performance of an underlying index, such as the FTSE 100 or the Dax.
The plans by the Borse would give investors the chance to link to EFTS on the Frankfurt-based exchange run by UBS, former Foreign & Colonial owner HypoVereinsbank, Merrill Lynch and Union Invest.
These German-based ETFs are already available to UK investors and can be accessed through a stockbroker. To increase interest, the German exchange and product providers are seeking FSA registration for the ETFs. This means they could then be marketed directly into the UK.
The Borse envisages other costs, such as commission, being on top of the basic annual management fee that the providers of ETFs take.
One means of adding on distribution charges would be through wrapper products. ETFs, as equities, are eligible for inclusion in an Isa or Pep, and can be picked via a self-select product.
Another method of distribution being considered by the Bourse is to link the ETFs to fund supermarkets in the UK, providing a ready-made platform for additional charges and intermediary commission.
Mark Dampier, head of research at Hargreaves Lansdowne, said: 'ETFs typically do not carry a front-end charge, and annual management fees tend to be no higher than 0.5%.
However, without an extra tier of charging, there is little incentive for UK commission- driven intermediaries to promote their use. There is a cost of distribution and intermediaries need to be recompensed for this.'
The ETF market has been expanding rapidly since its launch two years ago. In March, trading turnover through Deutsche Borse's XTF platform was some E4.8bn, which was 70% higher than February's total. This compares with the E222m traded during the same period on the London Stock Exchange's platform, extraMARK.
In the US, where ETFs developed, they are even more firmly established. As of 1 February, US exchanges had 102 ETFs listed, with ETF fund providers having $86bn in assets under management. Average daily trading there has now reached $6.8bn.
Dampier said he did not feel the UK market was sophisticated enough for ETFs as yet, but thought they would become
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