Equipping financial advisers with the right tools

Exchange traded funds (ETFs) have become increasingly popular with investors in recent years as a result of their efficiency, high levels of liquidity, transparency and affordability. In a complex investment universe they continue to offer a good value proposition.

As a result, the ETF market is expected to see strong growth in the next five years, said Thato Matsafu, head of primary markets at the JSE. 

Gareth Stobie is MD of CoreShares, a leading passive investment business which specialises in index-tracking investment solutions including ETFs, unit trusts and segregated mandates for institutions. He said that with more than 85 ETFs now available, covering a wide variety of asset classes, the ETF universe has become increasingly more daunting, particularly for clients new to investing.

Given the growing popularity of ETFs, he said there was a growing role for financial advisers to assist clients in how to invest in them.

An ETF strategist, for example, is an expert in the ETF market and can advise on the optimal mix of ETFs in an investment portfolio. Contrary to the trend, which is to focus less on product selection and more on the advice component, becoming an ETF strategist is an option for those financial advisers who want to broaden their skill sets and differentiate themselves in the market, he said.

Maurice Madiba is MD of Cloud Atlas Investing, a passive fund manager which recently launched three new African ETFs, including one that provides investors with access to Africa’s hard-currency, high-yield sovereign bond market. The business, which uses a rules-based investing methodology, recently started distributing ETFs in other markets, including Botswana.

The most important role for a financial adviser, said Madiba, should be understanding their clients’ needs and investment goals. Once they understand this they need to know how to select the right mix of ETFs on behalf of their clients to meet their investment goals.

ETFs are a highly efficient way to ensure a diversified portfolio with a high degree of control, said Grant Locke, head of OUTvest, one of SA’s only automated robo-advisers. OUTvest, which partners with CoreShares to offer passive investment solutions via a website and an app which combines sophisticated technology and financial advisers based in a call centre, aims to bring more certainty to the investment process.

“ETFs are a critical part of our ability to help financial advisers to create a low-cost, efficient portfolio that is well diversified,” he said.

The panel agreed that financial advisers can add significant value to their clients’ portfolios by including advice on passive investment solutions such as ETFs, given their ability to help lower the cost of the investment process.

WATCH the discussion below: