Assets invested in Exchange Traded Funds (ETFs) globally broke through the $3trn (£1.9trn) milestone at the end of May, according to ETFGI, an independent research and consultancy firm. Vanguard gathered the largest net ETF inflows last month with $5.2bn.
While institutional demand and direct buying by retail investors still account for the vast bulk of current demand for ETF’s, Blake said the product is starting to make sense to the adviser community in places which have seen a shift from commission paying products to non-commission paying products.
“Clearly RDR in the UK is the obvious example of where that has started to break down,” Blake said in an interview with International Adviser.
“Most advisers have come through RDR now. Certainly the very good ones have a fabulous business model with stable growth, better relationships with clients, and less conflict going on within the business,” he said.
“That does mean they are starting to look at vehicles they wouldn’t have done previously. All of a sudden (ETFs) are starting to make a lot of sense.”
Blake said that research done by Vanguard had estimated a financial adviser’s benefit to a client is worth approximately 3% a year. “That’s the value of the advice over and above what you would do by yourself, unaccompanied, as a direct investor.
“People tend to carry to much risk, pay too much, trade too much and have no sense of where they are going. We think the advisers’ job is to be their behavioural coach, the emotional circuit breaker.”
“In future the really successful firms, we think, will have a planning-centric offer which is around ‘I’ll keep you safe, I’ll guide you, I’ll protect you’.”
Blake said the adviser firms that have seen real success have been those that have moved away from an investment focused approach to one which focuses more on achieving agreed investment goals.
“Increasingly this is bringing about a move away from portfolio building and managing. They used to do their own component construction, but increasingly what they’re using is things like risk- rated portfolios.”
“We’ve got 4,500 advice firms in the UK using us every month now.”
Blake said at Vanguard sells these mixed bond and equity portfolio funds called LifeStrategy funds at a fee of 24 basis points a year.
“What’s happened is advisers are saying ‘I can’t construct a portfolio for 24 basis points’ so I’ll focus on planning.”
