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ETF innovation needs to come from all sides, says Lyxor’s Adam Laird


Many platforms, particularly those employing legacy technology, don’t cater for ETFs, says Mark Northway, Sparrows Capital. Northway’s comments come in response to an article in Wealth Adviser on how platform challenges are holding back ETF adoption by discretionary fund managers.

However, Adam Laird, Head of ETFs, Lyxor ETF, believes that while there have been accessibility issues, there are far fewer problems than previously. “Since the introduction of MiFID, ETFs have grown hugely, and while there are still some situations where it is more difficult or expensive to access ETFs compared with traditional funds, we are seeing platforms in the process of responding.”


Northway explains that the issue of inaccessibility has generally been the result of the older platforms’ incapacity to handle fractional ETF shareholdings, both from a technology perspective and from an inability to handle the unallocated ‘rump’ of fractionally traded shares. However, it can also stem from a historical differentiation between funds and shares (an ETF is simply a UCITs fund which issues listed shares).
“I know that there are lots of platforms that would like the ability of fractional trading,” says Laird, “but it is difficult to do it within the FCA’s rules on security of assets. This is one important piece of the puzzle that is missing at the moment and, until we can come up with a practical solution, it will remain a challenge for the industry.”
Laird acknowledges that some UK DFMs are looking at European platforms as a way to get access to ETFs. “European platforms are not necessarily more advanced in what they offer, but they are more likely than the British platforms to provide simple, low cost ETF access, and they can be more competitive,” he says.
“This is because trading of individual securities and certificates is much more widespread in Europe and the trading mechanisms for these are often the same.
“UK platforms are having to catch up, but that said, the UK has the biggest platform market in Europe and Lyxor’s core ETF range was built with the needs of UK investors in mind,” he adds. Lyxor ETFs are available on 18 of the UK’s platforms – both adviser platforms and those catering to D2C self-investing individuals.
However, there is some good news, says Northway. “The more modern platforms, such as Embark and seccl are fully ETF capable and address many of the hurdles faced by IFAs looking to deliver value to their clients through model portfolios.”
Northway believes that, despite the failure of many platforms to adapt to the emergence of ETFs, these platforms allow IFAs to access more sophisticated model portfolios and is long overdue in Europe.
Laird adds that the innovation also needs to come from the trading settlements infrastructure as well as platform technology. “We have done a lot with regards to market making as well as our trading settlement processes to make sure that ETFs are accessible for UK investors.”
Both Laird and Northway believe that there is a huge role for ETFs to play in the construction of DFM portfolios.
“Right now, the sector provides a depth and diversity of strategies which simply does not exist in the fund sector, and these developments will put pressure on the legacy platforms to up their game or face IFA migration as MiFID II cost transparency works its way through the system,” says Northway.
“In terms of the growth of ETFs, we have come on leaps and bounds,” says Laird, adding that DFMs, private banks and portfolio managers know that there is a real squeeze on costs. “ETFs are a way of satisfying that need for low cost portfolios.”

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