Independent financial advisers (IFAs) have highlighted a number of concerns they have with investing in ETFs, according to research conducted by Investment Trends.
Its survey, entitled the 2018 UK Exchange Traded Products report, found 22% of advisers said they preferred active funds, while 19% said they lacked knowledge of ETPs and 18% stated ETFs were "too complicated" for their clients to understand.
King Loong Choi, senior analyst at Investment Trends and author of the report, said the reason for this was ETF providers were directing their focus on institutional and wealth manager clients instead of the adviser market.
In order to address these issues, 15% of the 963 IFAs surveyed said better ETF research was needed for them to increase their allocation to the vehicles, while 14% said improved client-facing education was required and 12% cited the need for "appropriate" training courses.
Therefore, Loong Choi said it was crucial ETF providers "honed" in on educating IFAs in order to capture these potential flows.
"When it comes to IFAs, a lot comes down to education," he said. "Advisers want more ETP research, more client-facing material and more training on ETPs to help them grow their use of ETPs further.
"The education IFAs are currently receiving in the UK is not quite hitting the mark on what they are after."
However, the report did note respondents highlighted an average of 4.6 different benefits of using ETPs this year versus an average of 3.8 in 2014.
Loong Choi argued IFAs are becoming "more enthusiastic" about using ETPs as they are recognising the "wide range" of benefits these products bring to their clients.
He added the introduction of the retail distribution review in January 2013 had removed the "imbalance of incentives" IFAs had when picking mutual funds compared to ETFs.
When selecting ETF providers, respondents said low cost and reputation were the two most important factors, scoring 53% and 49% respectively.
Good past performance was third with 39% of respondents, while 37% highlighted diversification benefits and 25% said low tracking error.
"The brand or reputation of ETF providers is very important to IFAs," Loong Choi continued. "It makes sense because they are not going to select an ETF provider's products if neither they nor their client has heard of the firm.
"It is very clear the market is dominated by iShares and Vanguard," he added. "A big part of the flows seen into Vanguard is the strength of their brand."
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