There is a direct link between the FOFA reforms and the growth of the ETF market in Australia, according to the head of iShares Australia, Jonathan Howie.
Speaking at an adviser event in Sydney yesterday, Mr Howie said that regulatory changes at the retail level had led to a shift in capital markets.
“When you look at what was happening in 2011, the ETF market wasn’t growing. But what you see happening in 2012 and more starkly in 2013, is that the ETF industry has exploded in Australia. We would argue that this has occurred largely due to the changes in regulation,” he said.
“Similar to the fact that changes in regulation have encouraged institutional investors to move to ETFs, we actually think the FOFA reforms and the banning of commissions have meant that financial advisers are now looking at incorporating exchange-traded funds into their business.”
There are currently around 110 ETF products available on the ASX and the first two months of 2015 saw total ETF funds under management increase by 13 per cent to $17 billion.
Between 2004 and 2008 the market sat at around $1 billion.
Speaking at the same event, Oliver Hesketh, partner at Tria Investment Partners, commented on the continuing popularity of ETFs, saying that advisers were playing a key role in the expansion.
“Forty per cent of retail investors that own ETFs now didn’t own an ETF a year ago. A lot of the growth we are seeing is coming from financial advisers,” he said.
“Sixty per cent of the money that is in ETFs now is coming from financial advisers, which is more than a lot of people assume it’s going to be. As the understanding increases and the education increases it will increase.”
Despite this, the products are not suited to all clients, Mr Hesketh said.
“The fact is that ETFs are not right for every investor and some would be better in unlisted managed funds,” he said.
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