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Supplements » ETF Report March 2021

ETF roundtable: Seeking harmony in Europe

Funds Europe – The need to educate the public often crops up in conversations about ETFs. What more can be done to that respect? Is there a need for greater clarification on the different types of products available (ETFs, ETPs, ETCs, etc)?

Guthrie – Education’s been a prime focus for the better part of a decade, and we’ve come a long way. ETF literacy has improved greatly over the last ten years, even among institutions.

Where more work needs to be done is how we can reach a wider audience. How do we bring people into the conversation who haven’t been a part of it as yet?

Backreedy – Where we find there is still hesitancy is when you start to speak to the intermediate market where the IFAs are, who then need to go on to explain to their underlying clients. There is some way to go there. IFAs are often struggling to explain the finer details.

It’s getting there, but there’s still a long way to go and the conversation still needs to be had with their underlying clients.

Shastry – It’s been the ETF issuers, brokers, the exchanges, doing most of the educating at the institutional client level so far. Until very recently, the retail market wasn’t really that open to ETF distribution through various networks. Now it is opening up, work is being done there by Efama and the Investment Association. It’s best not to force-feed anybody because that doesn’t help any of the market players. There will be evolution. The only thing we can do is just keep educating in ways to help people understand, and I’m confident that everybody is committed to this and we will be in a much better place next year.

Schmitz-Esser – The buy-side has developed a lot. When you talk to fund selectors now, compared to say five or even eight years ago, they are more knowledgeable. They challenge you on each feature of the product and know what type of product is better for a certain situation.

Regarding total cost of ownership, this is a concept that is widely used by the buy-side, so they would ask, ‘What is the most tax-efficient solution for particular client types? How can we minimise the trading costs? What is the holding period?’ There’s more sophistication here these days.

However, there is still room for improvement in financial literacy, especially in continental Europe. This is a big topic for education systems. The financial education of children or young adults in continental Europe is virtually non-existent.

Dzanis – We need to continue the work with common language and nomenclature. It’s almost like Kleenex became the category of every brand of tissue, ETF is the proxy for ETP. If I say I’m going to put an ETC in your portfolio right now, how many people would think I mean, ‘Exchange-traded commodity, exchange-traded certificate or exchange-traded currency?’ The fact that there are three definitions is a great example here. We’re very sophisticated, institutional-minded people who are industry leaders, but there is an opportunity for us to have greater clarity here. As we become more mature as a marketplace and we offer better products to better serve investors, it can help retail be better protected if we’re explaining the risks involved with the different types of products and how they work, (i.e. a synthetic triple-leveraged type of ETF versus a traditionally physically backed ETC, for example).

Garcia Puente – We believe a lot in education, it’s always at the centre of our discussions with clients and financial advisers. There is a huge difference between financial advice right now compared to even five years ago: the knowledge has increased a lot among financial advisers.

Looking at the financial education of society, Mapfre recently signed an agreement with the University of Salamanca [in Spain]. We have also allocated funds to promote financial education in society through our Foundation in order to contribute to better decisions for our society. What we do now paves the road for the near future.

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