The use of research approaches designed for the assessment of actively managed investments in ETFs is causing excessive complexity and cost, according to ETF Consulting and Portfolio Solutions.
The founder of the training and consultancy business, Tim Bradbury, said the rapid growth of ETFs means research needs to be relevant and tailored to ETFs in order to support the advice process.
“We are being asked again to provide research on ETFs to assist financial advisers,” said Mr Bradbury.
“To meet this demand, we are re-considering offering ETF-specific research.
“We are being told by advisers that increasingly their clients are asking questions about ETFs, so advice channels and dealers need to be armed with the necessary information, education, and compliance tools.”
Mr Bradbury believes the dominant research model in Australia is clearly open to conflicts which are difficult, if not impossible, to manage.
“Of course it depends on the business model, but when an ETF issuer or any fund manager is charged substantial amounts of money by the research house to rate their product, it has the potential to create poor “optics” within the industry,” he said.
“This has also been identified by the regulator in its Regulatory Guide 79.”
Mr Bradbury believes there are, however, ways to provide expert research to advisers and dealer groups without the conflicts and excessive costs and his business intends to re-visit plans to provide this to financial advisers and dealer groups.
“If we consider there is a commercial business case, we will look to work with our existing business partners to provide a range of comprehensive, compliant and relevant research solutions,” he said.
“In addition, our ETF accreditation program for advisers will support this initiative to assist dealers and advisers in meeting the knowledge and proficiency tests for ETFs.”
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