BGI punts on fee-based planners to boost ETF demand

The trend to fee-for-service financial planning is the catalyst for the latest boost to Australia’s fledgling Exchange Traded Funds (ETF) market.

Barclays Global Investors (BGI), which last week launched its entry to the ETF market in Australia with eight international index funds, plans to list further funds by the end of this year or early next year. This will expand a market which has to date been pioneered by State Street Global Advisors (SSgA) which has three listed ETFs, which have proven popular with hedge funds managers and institutional investors even though they are designed primarily for the retail market. Morry Waked, BGI chief executive in Australia, and Richard Murphy, ASX general manager for equities, said they expected demand for ETFs to take off because of the increase in the number of advisers offering fee-for-service planning rather than commissions. However, some Separately Managed Account services, such as that from BlackRock, allow advisers to dial up trailing commissions when they include ETFs on their investment menus. BGI is the world’s largest provider of ETFs, with about half of the global $US700 billion market. It has 190 ETFs, which it calls iShares, on offer overseas. “We will have another tranche of iShares listed by about the end of this year,” Waked said. “There are now more iShares in the world than there are futures contracts.” Murphy said that the main problem holding back ETFs in Australia to date was the lack of support from the financial planning market. “But with the changing business models of financial planners, we expect to see more of them recommending ETFs.” ETFs provide cheap access to market indices, with intra-day liquidity. They also pay dividends. BGI’s S&P 500 index ETF, which is one of the eight launched in Australia last week, can cost investors only 9bps, with an average MER of about 40bps.