ETF investors lack financial advice

Only one tenth of new exchange-traded fund (ETF) investors received financial advice in the last year, presenting a great opportunity for planners. 

This is according to the BetaShares/Investment Trends ETF report, which surveyed 10,425 investors and 820 advisers and found there were approximately 69,500 ETF investors at the end of 2012. 

This number continues to grow strongly, with 79,000 expected by the end of 2013, said Alex Vynokur, managing director of BetaShares. 

However, Vynokur said of the 9000 additional ETF investors, only 1000 were receiving advice in relation to that investment. 

“From our perspective this really identifies a pretty significant opportunity in the market - a gap that advisers can fill,” he said. 

“The way they do it is to position themselves as experts in ETFs and asset allocation - because quite often the context in which people are looking to invest in ETFs is around those asset allocation decisions and how to build a diversified portfolio.” 

Contrary to popular belief, however, the rise of ETFs in Australia did not come at the expense of traditional managed funds, the survey found. 

Only 13 per cent of those surveyed reduced their allocation to managed funds in order to invest in ETFs. 

“Currently, the Australian ETF industry is, in the main, bringing more investor capital into the market, rather than providing a substitute away from other investment products, including managed funds,” Vynokur said. 

“Quite often you do hear people say that money in ETFs comes from managed funds, but what is actually happening is that the ETF industry is effectively benefiting from investors getting out of cash and investing in the markets.” 

The most commonly cited reasons for using ETFs continued to be diversification, low cost and access to overseas markets, while accessing specific sectors such as commodities and fixed income also ranked high, the report found. 

Superannuation remains a key investment vehicle for the growth of this sector, with almost half of the estimated 69,000 ETF investors purchasing these products through self-managed superannuation funds. 

“The ETF industry continued to grow strongly during 2012 in difficult market conditions and we believe continued growth will occur this year as investors continue to embrace ETFs as a way to obtain low cost, transparent exposures and as building blocks for portfolio construction,” Vynokur added. 

He said the sector managers around $7.4 billion in assets and is looking to increase that figure to $9 billion by the end of 2013. 

BetaShares, which conducted the survey in partnership with Investment Trends, is a provider of ETFs in Australia.