The fast-growing world of exchange-traded funds is helping to craft the shape of the wealth management industry, helping small boutique advisors to challenge the once-dominant position of big wire-houses in the US and affecting how advisors serve clients in Europe and elsewhere, according to Credit Suisse.
 
ETFs, which carry a TER as low as 15 basis points in Europe and even lower in the US market, enable discretionary wealth managers to build portfolios more easily and cheaply than in the past. Additionally, clients using advisory-only businesses can also gain market exposure for lower cost, Dan Draper, Credit Suisse global head of ETFs, told journalists at a briefing seminar yesterday.
 
“They [ETFs] have really lowered barriers to entry,” Draper said.
 
In the US, for example, small registered investment advisors were being formed out of break-away teams from some of the big wirehouses, prompted by the ability to run portfolios for clients for lower cost than before, he said. ETFs are having a “democratic” effect on the world of investing, Draper said.
 
In the UK, reforms under the Financial Service Authority’s Retail Distribution Review, which are designed to push advisors towards fees and away from commissions on sales, are also galvanising advisors into using ETFs and other low-cost products. 

Credit Suisse ETFs, which is a joint venture between the Swiss banking group’s asset management and investment banking arms, is Europe’s fourth-biggest ETF provider, posting $3.7 billion of net new asset growth in the year to date; in percentage terms, it has logged 46 per cent asset growth over that period.
 
Draper said that ETFs in countries such as France and Germany are typically marketed via the banking networks; in the UK, the distribution channels for such products is more fragmented, due to the traditionally key financial advisor market.
 
“IFA awareness of ETFs in the UK is growing, but still has some way to go in comparison to the US Registered Investment Advisor market. ” he said. He said the big fund platform networks, which have grown in sophistication and size, have helped in this process.
 
Speaking at the same briefing, Dennis Geelan, head of investment solutions for Credit Suisse’s UK private banking business, said that at present, as concerns have risen about the state of the global economy, there has been client interest in ETFs which are based on areas such as commodities.
 
“From a trend perspective, we have seen strong interest from clients to hold real assets…they get interested when you talk about physically backed assets [such as gold]”.
 
Within Credit Suisse's  private banking business, product specialists perform wide due diligence checks in looking at the ETFs available both from Credit Suisse’s own product teams and from outside the bank, Geelan said. In particular, he said advisors scrutinise ETFs for issues such as possible counter-party risks.