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ETFs are a reality but only if truly accessible to UK investors


Following the recent estimates from BlackRock that indexing and ETFs in UK wealth portfolios will grow by 50 per cent in the next two years, Bill Vasilieff, CEO at Novia Financial comments on the issues of accessibility and stresses the importance of offering fractional trading facilities to investors.

“Index funds and ETFs will open up great new choices for investors, but there are still issues accessing these products. I believe that without access to fractional shares, investors could still lose out on investment opportunities,” says Vasilieff (pictured).

Many observers believe that there are clear advantages to investing in ETFs: active portfolios work harder with indexing, they are cost-efficient and there is a more granular approach, particularly with factor investing. However, because of their complexity and the fact that they tend to be traded as complete shares, they can cause problems at a platform level. For example, when re-balancing model portfolios, in portfolio switching, or if a share price is very high it might preclude an investment altogether.  
Novia Financial has 350 Fund Managers and more than 70 DFMs using their platform.  “We are seeing more and more advisers requiring access to ETFs. This is not surprising when an active fund might cost between 80 and 90 basis points compared to an index fund which might cost between 10 and 20 basis points.
“But it is vital that investors have wide ranging access to ETFs and this is often only possible through the use of fractional shares. This has also become more prevalent with the increased use of centralised investment propositions (CIPs),” he says.
Fractional trading can address some of these issues explains Vasilieff, because it allows investors to purchase ETFs down to a value of 0.0001 of a unit. This is particularly important for advisers working with investors who make regular contributions or for those with smaller portfolios.
But he stresses that platforms must get the infrastructure right in order to be fully prepared. “There have been some notable platform issues which as we know can be very disruptive.”
Novia Financial started fractional trading for ETFs in 2017 via the Winterflood Business Services bolt-on solution. There is an extra layer of fees but overall, the firm is able to offer reduced aggregated trading costs for ETFs. Vasilieff explains that the Novia Financial Model Portfolio Manager is becoming increasingly popular because it allows advisers and DFMs to set up and run model portfolios on the platform “at the touch of a button.” It also provides a consistent solution for advisers but can also differentiate different segments of an adviser’s customer base.
In addition, clients have full transparency with regards to fees. “Clients can see every penny coming in and going off the platform,” he adds.
UK platforms are well set-up to provide access to index funds says Vasilieff. “As investors gain a deeper understanding, they will demand more exposure to a wider range of ETFs, but in order for this to happen, it is vital that they are genuinely accessible.”

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