“This survey aims to fill a gap by providing insightful data and observations on how UK wealth managers use index products and why,” said Tim West, head of asset management consulting at KPMG UK.
“The market for index products has exploded in recent years, and the findings help to uncover the drivers influencing this growing segment of the market and make an educated projection about what the future might hold for index products in the UK.”
The researchers reached eight key findings including highlighting differences in usage of index funds between advisers, bankers and managers as well as outlining characteristics set to drive the market
Not a case of either or
While some firms offer portfolios made up of 100% index products, the survey shows many investors are happy to combine active and index products to deliver the best outcome for a portfolio – using index products both strategically (where active managers do not deliver sustainable alpha) and tactically (to achieve specific exposures quickly).
Regulatory drivers
Regulation is top of mind in the UK wealth industry, with 55% of respondents highlighting it as a critical driver of change over the next two years.
Discretionary fund managers and private bankers noted that MiFID II will likely lead to an increase in price transparency and consequently greater scrutiny of the costs of the underlying portfolio. This may result in more use of index investing products.
ETFs or index products?
It depends who you ask – while financial advisers are more likely to use index mutual funds (70% do), the survey highlighted that two thirds also use ETFs. This is a very high number given ETFs are yet to be universally available across platforms. All of the private bankers surveyed use ETFs, and 86% of wealth mangers currently use them to benefit from the liquidity and tradability that ETFs offer.
