As the market grows and develops this could benefit advisers, who will have a greater choice of lower cost investment solutions in the post-RDR world.
Defaqto's Guide to Passive Investing, published today, suggests that there is frustration among the adviser community over the performance and the cost of many active funds. The cost pressures imposed by regulation, product development from passive fund groups and recent entrants to the market all point to the growth of passive investments.
A few years ago the choice for people seeking to track an index, through a unit trust or Open Ended Investment Company, would have been limited largely to tracking the FTSE 100 or FTSE All Share. According to research carried out by the Investment Management Association, the proportion of investments put into non-UK equity trackers increased from 19% to 30% between 2005 and 2010, while 51% of the 81 tracker funds that the IMA recently reported on are invested in a spread of indices.
A key issue for any adviser looking to steer clients towards a passive investment solution is accessibility. The evolution in distribution of UK retail funds and ETFs means advisers and their clients are able to access passive funds and ETFs readily through numerous types of products that all carry different cost and tax implications. The main options available are:
- Platforms
- Tax wrappers
- OEICs and unit trusts
- Discretionary Fund Managers
- Managed solutions
- The stock market
Defaqto's guide outlines the options and solutions currently available in the passives sector, looks at the reasons why passive investments may be suitable for a client and the key considerations advisers should take into account when investing clients' money in these types of funds.
Adrian Gaspar, Senior Consultant at Defaqto, said:
"There is a great deal for advisers to consider when constructing or selecting suitable investment solutions for clients, and the decision as to how to use passive funds is yet another layer of complication.
"There are many advantages to passive investing and some will argue that the removal of stock picking risk and the reduction in relative volatility, costs and research, while servicing requirements, means that many advisers are effectively de-risking their clients' portfolios, and as consequence de-risking their business."
