FSA rules to boost retail ETF market

The Financial Services Authority has published rules removing commission bias from the sale of retail investment products, which is set to boost retail use of ETFs, industry experts say.

The regulator's Retail Distribution Review (RDR) says from the end of 2012, firms will not be able to accept commission in return for recommending specific products.

Independent advisory firms will also have to offer the whole range of retail investment products to clients, including ETFs, in order to be coined truly independent.

The policy statement confirmed ETFs already come under the category ‘Packaged Product Regime,' and are therefore products which advisers should now be considering.

Furthermore the new professional standard rules will require both independent and restricted advisers to develop a strong knowledge of ETFs.

Julian Hince, responsible for the intermediary business at iShares, says: "The RDR creates a truly level playing field. With the commission bias being removed and with the requirement for independent advisers to have to consider all products, regardless of commission, it now puts ETFs in the camp."

He adds: "We must therefore be on the radar screen of advisers wishing to remain independent."

Manooj Mistry head of db x-trackers UK says the changes will remove the influence of commissions on advisers' recommendations, allowing them to take a broader look at investment products for their portfolios.

Consequently ETFs that do not provide commissions may become a larger and more important part of retail investment portfolios, he says.

However, he says it is now up to the ETF providers to increase awareness and education in relation to ETFs. "It's up to ETF providers to make sure their products are on wrap platforms and that fee-based IFAs who want to use ETFs can access them."

He adds: "This is definitely a positive development but it's not going to result in an overnight shift to ETFs."

Hince at iShares says there are number of drivers alongside the RDR leading IFAs to consider their investment proposition and the use of products such as ETFs.

He adds: "We've been spending a great deal of time to help educate the market around ETFs and we're certainly continuing that."

Both iShares and db x-trackers will be hosting road shows to further educate and inform advisers over the coming months.