Having recently moved to Australia from the U.S to join BetaShares., I’ve noticed many similarities between the financial industries in both countries. Particularly I’ve noticed:
- the increase in compliance and reporting obligations that Financial Planners must now meet; and
- growing investor demand and interest in Exchange Traded Products (ETPs) – which I personally find very exciting.
These circumstances combined have led to a new trend emerging in the U.S., which involves Planners adopting the expertise of specialist model strategists to construct portfolios for their clients – a trend that could change the current advice ecosystem and dubbed “The Rise of the ETP Model Strategist”.
In terms of a definition, ETP Model Strategists are fund managers whose strategies contain at least 50% in ETPs. These strategies can potentially contain the gamete of investable universes – asset breadth, portfolio implementation, and primary exposure type. In 2011, when Morningstar released their first ETF Managed Portfolio Landscape Report, the report contained only 370 ETP Model Strategies. Today, Morningstar is tracking 699 strategies from 146 firms with assets floating around USD$100 billion. Clearly, the ETP halo effect is contributing to the growth of the ETP Model Strategist.
The ETP Model Strategist provides Planners with access to institutional quality investment solutions that are transparent, and more cost effective compared to Planners designing the portfolio themselves and, importantly, assist in complying with their regulatory obligations.
Some reasons why ETP Model Strategists are growing in popularity with U.S. based Planners include:
- increasing scrutiny in professional standards
- the move to adopt a ‘fee for service’ based advisory model, which means Planners need to separate the cost of advice from the cost of distribution
- time constraints Planners are now dealing with. Specifically, research from an RIA Benchmarking Study, courtesy of Charles Schwab, indicated the number one growth barrier to ‘fee for service’ based advice is being unable to devote enough time to business development in marketing and client services.
With these reasons in place, it’s not hard to see why U.S. Planners are looking to ETP Model Strategists more and more.
In Australia, there are a small number of high quality firms who are acting as ETP Model Strategists. Many are clients of ours and we are pleased to hear first hand about the growth and development of this industry. As with many trends that originate from the United States, it is my belief that ETP Model Strategists will become increasingly popular and mainstream here in Australia. This will only serve to compound the already tremendous growth we are experiencing in the ETP industry ‘down under’.