Three cheers for the innovators of Switzerland & three lashes for the UK’s Financial Services gatekeepers

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Allan Lane, Algo-Chain

By Allan Lane, Algo-Chain – If you are a Discretionary Fund Manager running Model Portfolios on financial adviser platforms, you will often find that ETFs available on one platform are not available on another, which invariably forces the manager to oversee multiple incarnations of what is meant to be the same portfolio.  Recently when I was trying to setup an ESG themed Model Portfolio on a platform for a new client, I was told that I could not include UBS’s EM ESG Diversified Bond ETF because the backend gatekeeper had decreed that access to this fund was not an option – and neither were any other EM ESG Bond ETFs.  

UBS was the first ETF provider to trailblaze the ESG cause in the Corporate Bond space, and with that innovative step it became much easier to design a family of Multi-Asset ESG ETF Model Portfolios.  UBS’s decision to build out their ESG credentials must have been a hard-won battle at times and one can only imagine how they will react when they realize that on some adviser platforms the ‘computer says no’!

Like it or not, over the next five years, innovation will provide the only realistic framework from which the UK’s wealth management industry is going to grow from its current base.  Yet for an industry whose favourite colour is beige, this will be quite some challenge.

Many pundits often place the blame at the FCA’s door, but many times it is the gatekeepers that are silently maintaining the status quo.  Why give the end investor more choice when there is no apparent benefit in doing so?  According to a recent report from Accenture, times are changing though as they estimate that with succession planning there is up to a USD1 trillion+ in wealth that will transfer from one generation to the next.  Needless to say, there is every reason to believe they will be much more demanding than their parents’ generation ever was.

One of the big challenges the ETF industry faces, along with the rest of the fund management industry, is the fact that there is just too much product available and proverbial ‘shelf space’ is at a premium.  With over 2,000 ETFs listed on the London Stock Exchange where does one start?  Let us not forget the paradox of choice where if given too many choices, one is less likely to buy.  In a Stanford University research study published in 2000, psychologists Iyengar & Lepper, retold the tale where they found that consumers were bewitched if they were presented with 24 or more flavours of jam. It transpires ‘More is Less’ when presented with too many options, displaying a level of engagement that is demonstrated much lower than the case when only six choices were on offer.

The news has just reached me that JP Morgan will be distributing their new family of model portfolios via Nutmeg’s robo-adviser platform, which first and foremost is a story about providing the end investor with more choice.  But it is also a story of disintermediation.  We all agree that it’s not feasible, nor commercially sensible, to offer unlimited choice to the end investor.  Yet in a world where competition is fierce and every wealth manager or financial adviser is looking to grow their revenues, I would start to worry about those direct-to-consumer retail platforms that might start attracting some of the USD1 trillion that is on the move.  The level of fees matters but sometimes the end investor simply wants some degree of choice.

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