MiFID II will “boost ETFs, but not lower prices”

The MiFID II regulation will encourage European distributors to sell exchange-traded funds (ETFs) because of the ban on commissions to independent financial advisers, says a consultant.

MiFID II – the Markets in Financial Instruments Directive II – will boost ETF sales in Europe’s markets, which are dominated by banks and tied agents that have “little interest in selling ETFs”, Cerulli Associates says.

Fragmentation and the dominance of banks and tied-agent networks in countries such as Italy, France, and Spain are inhibitors to ETFs gaining further ground on the continent, but the ban on commissions for independent advisers, which is due to be introduced by MiFID II in 2018, is “likely to encourage them to make greater use of ETFs”, Barbara Wall, Europe managing director at Cerulli, writes in a report.

But Cerulli does not expect ETF prices to fall, at least in the short term, in line with a growth in popularity – even though this was the case in the US.

“In the US, low prices drew in investors and economies of scale, in turn, compressed fees further, attracting more investors, thereby establishing a virtuous circle. One of the reasons Europe has not followed suit, is that operating on the continent involves dealing with different regulators in different languages and through various marketing strategies,” writes Wall.

Even though inflows have risen, distribution among more than 20 exchanges and sometimes in multiple exchanges inevitably entails more expenses, according to Wall.

Wall makes the prediction in the The Cerulli Edge, a regular industry report by the firm.

ETFs have generally been regarded as more attractive for independent advisers to sell in the UK since a ban on commissions under the retail distribution review.

©2016 funds europe

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