Christopher Meyers (pictured), head UK & NL institutional trading at Flow Traders, reports that over the last 18 months, the firm has seen an increase in wealth and asset managers in the UK using ETFs.
Flow Traders is a global principal trading firm, a technology-enabled liquidity provider specialising in ETPs and ETFs. The firm continuously provides liquidity to the major financial markets, quoting prices on more than 95 exchanges and providing bid and ask prices off-exchange to institutional counterparties on a request-for-quote basis.
The recent surge in interest in ETFs by wealth managers is partly due to the ETF providers, particularly in the UK, who have been pushing into the wealth space, Meyers says. "It's predominantly through platforms, but there has also been a huge marketing push from firms who would normally offer share dealing and CFDs to their client base and are now actively trading ETFs. It's long overdue!"
As a firm, Flow Traders is ramping up to give that market access to more liquidity and better pricing in ETPs and ETFs. "It is different from the institutional market," Meyers says. "Normally in the retail space, people would access stocks through IFAs using managed accounts and platforms. In the past, most of the platforms would have used a retail service provider (RSP) and maybe bunched that trade once a week, because most of these platforms were set up on a mutual fund ideology. Whereas now the exchange traded part of it and intraday volatility allows more tactical use of ETFs."
These firms have been pushing their platforms to get better trading execution, so Flow Traders is now working to go live as soon as possible on the RSP. "We are going to give the retail and the wealth managers access to our prices over that trading venue," he says. "It's important to give them direct access to the real liquidity providers without another layer of brokers in the middle."
Flow Traders enables wealth managers, IFAs and platform users direct access to ETFs just like an institutional investor, making the cost chain as short as possible for them without having to go through brokers, Meyers explains.
Conquering the UK's wealth management industry has been challenging, he reports. Whereas in Luxembourg or Switzerland where ETFs saw easy growth, the UK industry has been dominated by mutual funds.
"Wealth managers are now hiring people to do passive investment analysis and beef up use of passive investments," he says. "In the past it was usually building blocks of mutual funds, but now comparing like for like to ETFs, the mutual funds are just too expensive. Clients are not prepared to pay 250 bps for discretionary mandates, particularly against a background of the new robo-advisor firms with their average cost of 50-60 bps. Just half a per cent compared with the traditional wealth managers.
"These disruptions have allowed them to move into passive investment because they are cheap and easily tradeable and bring their overall costs down as a whole."
Meyers says his firm has observed that the UK has been lagging a bit on ETF use but he strongly believes that the arrival of Mifid II will bring further disruption. "More and more transparency both on what levels trades are executed (Mifid II) forcing execution venues and trading desks to look for the cheapest route achieving best price, together with fees for managed accounts and the fact they are easily comparable versus the Robo and online Advisory, will further grow the ETF market and push it to new highs in 2016 and beyond."
