Asset Management

077 | Comparing ETFs and Mutual Funds

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Tutors on the panel:

  • Ursula Marchioni, Chief Strategist, EMEA iShares
  • Joe Parkin, Head of UK iShares Wealth and Retail Sales
  • Brendan Ashe, Director, Investment Product and Platform at Coutts

Learning outcomes:

  1. The growth drivers behind the ETF market in the UK
  2. How to choose between active and passive mandates
  3. How to construct a due diligence process for selecting ETFs

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Asset Management
Learning outcomes: 1. The growth drivers behind the ETF market in the UK 2. How to choose between active and passive mandates 3. How to construct a due diligence process for selecting ETFs PRESENTER: Well, Ursula, just to kick things off. Are we seeing a big growth in the use of ETFs in the UK and if so what’s driving it? URSULA MARCHIONI: We definitely are. I would start by making the point that this is actually a bigger global trend that the UK is part of. So if I think about index investing as a whole globally, we estimate approximately US$14 trillion are now indexed to a variety of benchmarks. Within that pot of money approximately US$3.4 trillion are in ETFs and a similar size in index mutual funds. So it’s really a very big part of the financial industry. I will leave the UK part to my esteemed colleagues. I think to go to the second part of your question, in terms of why is this happening? I would really mention three reasons. One the benefits that index strategies deliver to investors. Think about diversification, transparency, cost efficiency, so that’s my number one. Number two is the fact that these instruments, as they become bigger and more known to investors, actually lend themselves to new portfolio usages and therefore more investors, more types of institutions and advisers and retail clients come into the market. So that will be my number two. And then finally number three, which I personally find really exciting, is the flexibility that index strategies have proven to be. And I’m referring to the rise of smart beta and alternatively weighted schemes. So 10 years ago index strategies, index mutual funds, ETFs, were really available on the FTSE of this world, the S&P of this world. Look at today, you can access fixed income, you can access small cap. You can access again value or growth strategies. So I think it’s a really exciting space. PRESENTER: Thank you for that. Well let’s take it from the global level down into the UK. Joe, within those broad trends what’s particularly appealing in the UK? JOE PARKIN: Yes, I think ever since the financial crisis we’ve seen an absolute evolution in the asset and wealth management industry, and so there’s several things that are driving this. So when you think about RDR, MiFID II and some of the regulation that’s happening, which has had a huge effect on advisory, the banning of retro sessions and such and that sort of stuff. It’s really meant that ETFs have played a far greater role in bringing down costs within portfolios, and really put them on a level playing field with their mutual fund colleagues. I think the other thing is the huge growth of multi-asset vehicles, which has been very prevalent in the UK. And as multi-asset grade they need tools in order to be tactical, be nimble, be flexible, and an ETF and index funds play perfectly into that particular growth. I think the final thing I would say is the advice gap and the digital solutions that are being designed and delivered for that particular market. And I think particularly in the UK we’re going to see an explosion of those over the next year. And at the heart of all these products will be a passive orientated portfolio. So I think those three things are also helping with the growth. PRESENTER: Thank you for that. And Brendan Ashe, you’re working at Coutts, how is Coutts using ETFs and index trackers, and how has that changed over the last five or 10 years? BRENDAN ASHE: Well I think we have been using passive instruments and portfolios for quite a while now. Generally we use it for the reasons that have been outlined there by Joe. As well we like the fact that there’s flexibility. Obviously it helps bring down costs within a portfolio. And I think the cost aspect is very important, you know, and from our point of view we are already heavy users of ETFs. Do we see that increasing? Possibly, but really I think what we’re really focused on is bringing down costs, whether that be on the passive side or on the active side. PRESENTER: And this demand for ETFs, you were talking about, is it coming from the end punter or is it more someone such as yourself Brendan, as a guardian of the interests of the end? BRENDAN ASHE: I think as I say we’ve been using ETFs and passives for a long time now. Our clients give us their funds to manage within risk tolerances and to help meet their goals. And we’re tasked at doing that in the most efficient way possible. Whether that means that we deploy a passive, then we make that decision. So maybe in the past it has been something that clients have just seen in their portfolios. But we’re definitely seeing an increase in interest in costs of running portfolios from clients. And I think that discussion, the wider discussion within the financial industry is definitely impacting that at the client level. So I would anticipate that we’re going to see more demand from clients, well justification as to why we may not be using passives, why we would use active rather than a cheaper beta exposure. PRESENTER: And Joe? JOE PARKIN: I mean definitely in terms of the end client we’ve always seen significant interest as well as significant holdings in passive. And I think when you really think about it, what is an ETF, it’s simple to understand, they’re easy to use and they kind of do what they say they’re going to do on the tin. And so on the 10 o’clock news when you hear that the FTSE’s up 3%, it’s very simple to understand that your ETF will also be up 3% as well. So I think from an end client perspective you necessarily, they do want to do their investing themselves, to trawl through hundreds and hundreds of funds. So I think the brand is important, so to be able to go to a trusted brand. And then really just it says FTSE 100 I know I’m going to get the performance of the FTSE 100. It’s a simple and easy to use vehicle. So from an end client perspective it’s kind of like a very popular vehicle. PRESENTER: Well Ursula, if we take that onboard, all these advantages of index tracking, what’s the future for active fund managers? URSULA MARCHIONI: Very difficult question. So maybe just to finish off on the ETF side, I think what I would add to the UK perspective is also if we look at the US 50% of ETF ownership is now in the hands of end investors. So if you think about the current status of the UK where there’s a lot of demand, a lot of interest, but we’re certainly not at 50% market share for retail and end investors. And then look at the US which is somehow 10 years ahead in terms of adoption of index strategies, I think you see that big delta and how much growth you can imagine will happen in Europe, in the UK in the years to come. Your question is obviously super relevant, so what’s going to happen to the other side of the coin? I’m a big believer in active management. I think it delivers great results. And I would also make the point that index managers do need active managers. If everybody moves to passive then the whole system breaks down. You always need to have two people on the two sides of the trade. And opportunities will always be there for managers that have the skills to identify good companies with solid fundamentals, and actually implement angles that are difficult to wrap into a rule based approach, which is what the index does. So for me going forward it’s a world that will be even more bar belled than what we see today. The big rise of index investing will coexist with a growth of true active alpha delivering strategies. What’s going to be squeezed in my view is what is in the middle. And you’ve seen a lot of press coverage, a lot of regulatory action in terms of what happens to the closed benchmark or closed indexed funds, which kind of position themselves as active strategies but really are delivering a benchmark plus proposition. So I think that middle part is going to be under pressure. The two ends of the barbell I’m very positive on. PRESENTER: Joe? JOE PARKIN: I agree with that, and I think we just need to move away from thinking that, I mean passive in itself is actually not a particularly good word to describe what you’re really doing. And I think no one who’s actually using passive is making a passive decision. It’s a decision between to actually use that instrument in the first place, and then it’s a very active decision where to asset allocate. The vehicle you use at the end of it, maybe tapping into another decision you’re making. So whether it’s on the value side of things and you have a really good active US value manager. Or you decide to go into something that looks like a smart beta, or you decide that actually do you know what, the S&P 500 have a lot of value companies in it, and therefore we’re going to use it. So we have to move away from thinking that passive is passive and it’s a passive decision. It’s a very active decision in order to use your passive. It’s just the implementation. PRESENTER: Well, Brendan, from your point of view at Coutts, where would you use active managers and where would you use passive? BRENDAN ASHE: In general I suppose to Joe’s point, you know, this debate is set up on very binary terms. You either believe passive works here or active works there, or one works or the other doesn’t. That’s not really the approach we take. I suppose if you look at the financial market as a whole, there are places we think that passive isn’t sensible. The less liquid areas of the credit markets, real assets, things like that. If you look at the UK market over the last couple of years, active managers have done quite well because of their tilt towards midcaps and small caps. But that’s kind of reversed this year with the outperformance of the FTSE 100 leaving managers struggling. So I don’t think you can kind of say that there’s one area where active definitely works or one area where passive works. And if you look at any of the academic literature, you find that managers as a whole, active managers as a whole tend to find it difficult to beat the benchmark. The approach we take is very much bottom up. We look at the exposure, the investment team that we’re looking to play. We’ll consider whether there is an active manager that we have conviction in. We’ll then consider how that, adding that manager to our portfolio, what that will do from a style perspective. And if that doesn’t all add up we may just go passive. So really it’s a bottom-up approach rather than looking from the top-down and saying oh yeah, active works there or passive works there. PRESENTER: Joe? JOE PARKIN: I think as well the industry, regulation and transparency, which I suppose is really the same thing, has driven a lot more outsourcing as well as a lot more focus on fees. And so people are becoming I think a lot smarter about how they use their fee budget as it were. So there is a, when it comes to US equities for example are you going to put something into a 60, 70, 75 basis point active manager when you can buy a passive vehicle for 7? And so that conversation, so I think clients have become, whether it’s smarter or whether it’s they’ve needed to just, like the way they allocate their fee budget has become a lot more something that they think about. PRESENTER: But just very quickly on that, if you’ve got a choice between an active manager or a passive and there’s that gap in fees, 7 bps versus 75, what goes into your thinking on whether you pick one over the other? Because you don’t know quite what either is going to produce in advance of the purchase. BRENDAN ASHE: True, but I suppose from an active due diligence point of view, what you need to get comfortable with is the process, the people, and whether or not the performance in the past. Performance in the past is interesting but you’re really trying to project forward as to how you think the strategy will do. And you’ve got to not just look at the manager but you have to have a view on how markets will perform or behave over the timeline of your investment. So if you are looking at a value manager you might think he’s great, the process works, the people are great. But if you think that it’s going to be a growth market for the next five years there’s probably not much point allocating to them. So there are a few decision points that you need to make that aren’t necessarily down to how good the manager is. So if we think, if we come to the end of a process where we think actually yes, we think it’s a growth market, this growth manager, we have confidence in him. It’s a question then of well do we think the fees are justified over and above what can be produced from a passive? And if the answer to that question is yes, well then we will allocate to the active manager. PRESENTER: Just very quickly on the timeframes for investing, are you, would you say you’re investing using all of these funds, passive and active, or actually trading, anticipating which way the market’s going and then? BRENDAN ASHE: No, I mean we’re long term buy and hold investors. That’s not to say we don’t pick up tactical opportunities when we see them, but as a general rule we look at ourselves as buy and hold. So we’re buying for the medium term. So if we’re allocating to manager we would expect to be holding him for three to five years plus. PRESENTER: There’s a lot of difference between active and passive, but I want to come to the main differences between ETFs and mutual funds themselves. So Ursula, can you run us through because they’re very similar but they’re not absolutely the same? URSULA MARCHIONI: Absolutely, it’s a tricky question because if you think about ETFs they’re nothing more and nothing less in Europe than a UCITS index mutual fund that happens to be traded on an exchange. So to your point similarities are absolutely there in terms of how they’re built, how they’re structured. If you think about the BlackRock model we share the same portfolio management group in terms of how the funds are actually run on a day-by-day basis. So in terms of differences I would really summarise them around three areas. One is the trading aspect and the operational setup in terms of how you enter and exit the fund. That is probably the most visible difference across the two vehicles. So you’re tracking a benchmark, you’re trying to replicate that index. With an ETF you do it through a fund that actually operates as a security. It’s like a Vodafone stock. You access it through a regulated market, and you can trade it continuously throughout the day. So should you want to do something like enter the market or exit the market instantaneously, you can. That is not the case for an index fund where you tend to have a daily liquidity feature. So that would be the first difference. The second difference that I would point out is the range of exposures that you find nowadays in markets. I don’t think there’s a real intellectual reason for that, but it so happens that the ETF market has developed in a way that if you’re looking for very niche or smart beta exposures, you tend to find more offering in the ETF space vis-a-vis the index mutual fund space. For historical reasons the index mutual fund space tends to track the big classic benchmarks, again the FTSE, the MSCI of this world. So that will be my second point. And then I think in general as a third point I would mention the operational setup of these vehicles. So if you think for example about how often the price is published, this is very relevant for platforms in the UK. Index funds have one price per day. It can be at the end of the trading day or it can be at noon. ETFs have a price that varies throughout the day, and then an end of day closing NAV. That from an operational perspective leads to the fact that certain investors prefer one model versus the other. PRESENTER: Well, Joe, picking up on that, a lot of advisers in the UK buy off platforms; they don’t really buy off exchanges – is that a hindrance to the growth of this, of the ETFs in the advisor space? JOE PARKIN: It certainly has been. But I think it’s something that’s changing, and changing quite quickly now. I think you’re very much changing, to Ursula’s point, operationally how you actually go about behind the scenes. You have to connect with the exchanges, you have to have dealers that may do it; whereas the index fund just feeds straight into the standard mutual fund flow. We’re seeing a lot of the platforms upgrading themselves to be able to not only do ETFs but then stocks and bonds, as well as the fact there’s actually demand coming from, if you’re a discretionary portfolio manager, a huge growth in discretionary portfolio managers, and IFA outsourcing to discretionary portfolio managers. Then like these guys are wanting to get a little bit more granular about your portfolios, they’re taking more specific bets perhaps, and therefore not only do they want active funds, they want index funds, they might want single stocks, but they certainly want ETFs to be able to deploy those views. I think the other thing that is happening as well, and we’re seeing a big growth in the digital and direct channel. And for them the technology tends to be able to cope with ETFs quite easily and quite significantly. So I think that not only will the platforms get pressure from the discretionary portfolio managers, but also then they’ll become so readily available within the digital market and the big growth we’re seeing there, that it will kind of just fall into place. Because I think it will just, the momentum will happen. PRESENTER: Just on digital and direct for a moment, where’s the demand, what sort of ETFs are people demanding there? Is it the mainstream FTSE 100 and S&P 500, or is there a real hunger for quiet esoteric things? JOE PARKIN: Yes, so it’s interesting. So I think there’s, so I’d split them in two in terms of digital. I think there’s the do it yourself investor who is the typical Hargreaves Lansdown, Barclay stockbrokers, you know, they’ve been doing it for a long time. There tends to be, we tend to see a concentration in an around about 10 or 15 industry ETFs, the main UK indices, some gold, S&P and some UK bonds. And then there’s little chunks into a lot of other different things. And I think people come up with, people might read something about Brazil and the elections and decide actually that’s a great play or whatever they may do. So we do see that. And then I think there’s the catering for you want to give someone your money, like a nutmeg type solution. So you give someone your money. And I think those are going to be held in some pretty core type ETFs. So I think it goes both ways, but again it’s going to be, the flows are going to be concentrated into 20, 10 to 15 core ETFs, big. PRESENTER: All right, thank you for that. And Brendan, when you’re using index products are you tending to use them strategically or tactically? BRENDAN ASHE: In general as I say we’re buy and hold investors. So we will use these to blend with active funds to give cheap basis, to bring down costs, intended to hold for the medium to long term. And in that case we can use the ETFs or index funds; it’s a question of what’s the overall cost for the individual product? However, if it’s a more tactical idea, like trying to trade around an event, a political event, central bank announcement, well then the timing of your trade does become important and in that case you really want to use an ETF. As well to the point that Ursula made earlier, you have more options in the ETF market, so you might have a preference for index funds but if you want to express a view on financials or maybe high yield, you’re not going to find an index fund that can do that for you. PRESENTER: Brendan, what drives or could you tell us a bit more detail of what drives your decision on whether to have the index fund or the ETF? I can see if one of them offers an exposure that you need and the other doesn’t that’s a fairly easy. BRENDAN ASHE: I suppose we’re lucky because operationally we can be rap or agnostic. We have a dealing team. We have, on the fund size we’re plugged into custodian and we can settle index funds and mutual funds through. So really it comes down to if the exposure’s the same well what is the investment going to cost us? So we look at, well I suppose the quality of replication in terms of the tracking error. We look at what that means in terms of tracking difference. And then we look at the entry and exit costs. And whichever product comes out giving us the best value that’s the one we’re going to go with. PRESENTER: Is it too simplistic to say as a rule of thumb these are the characteristics of index funds, there’s some pros and cons in there, and these are the characteristics of ETFs and they come with their own set of pros and cons? BRENDAN ASHE: Yes, I mean I think again these debates have become, they’re set up to be very binary. And BlackRock, they have an index fund and an ETF business, but many other providers it’s either one or the other. So there’s a natural tendency to promote the perceived advantages of one wrapper than the other. We wouldn’t see it like that. There are differences to the product wrappers. That doesn’t make them good or bad, it’s just they’re different and you need to understand what the differences are, and how that might impact on the ultimate performance that you get. So from my point of view it’s very much just understanding the products, and once you have the facts making a decision based on that. PRESENTER: And from your point of view Joe at BlackRock, are ETFs and index kept in separate categories within the BlackRock range? JOE PARKIN: No, it’s very much just about understanding what the client wants, the exposure he wants, and then delivering him. And sometimes they’ll be specific about index funds or ETFs for certain reasons. So I think we’ve gone through them. But ultimately, and this is where we do a lot of work with Ursula’s team, we just deliver the client both options and allow him to decide. Now sometimes it might be okay I’m going to hold this for three years, or sometimes I’m going to hold this for a shorter period of time. And therefore we’ll just provide an agnostic view. To us it’s beta and it’s a wrapper, and I think that’s the way it should be. PRESENTER: Very quickly I want to come on to the ticklish issue of tax, because I know a lot of advisers will have clients who’ve bought investment trusts, there’s stamp duty involved. You said an ETF is, it looks like a fund but it kind of acts like a security, like a stock. What’s the issue on taxation, is it the same as funds or slightly different? URSULA MARCHIONI: It is slightly different you’re right. So if I think about stamp duties, ETFs traded on the London Stock Exchange are exempt. So they trade as a stock but they don’t have that additional layer of costs that you need to take into account. Nevertheless similarly to an index mutual fund when you purchase a UK company, so tracking for example at FTSE 100, there is a stamp that needs to be paid. So in that sense differences and similarities coexist. What I would point to, and I think this is certainly something that we’ve discussed with Brendan before, is the fact that with ETFs the feature of having a vehicle that trades on the secondary market means that some of the underlying stamp duties can be saved in certain occasions. It’s not something that is guaranteed and is always there, but if you think about it ETFs can be purchased on a primary or secondary market. By primary market I mean a purchase which is very similar to what you do with the index fund. So you actually have to envisage a situation where you hand out your money to the manager, and the manager goes out to the market and purchases the securities. Obviously such a transaction would trigger stamp duties for UK stocks. For ETFs that’s certainly one of the routes. There’s also an additional route whereby you buy an ETF from someone else. PRESENTER: So Brendan wants to sell some shares in his ETF and I want to buy them. URSULA MARCHIONI: Correct, if that happens for a FTSE 100 ETF there’s no need to actually transact at the underlying level, which means that there’s no need to pay stamps. So those are interesting areas to consider, and I couldn’t agree more with what Brendan said in terms of really think about the outcome as an investor. It’s not about a single facet of the discussion such as the TER; it’s much more holistic and tax is absolutely one of the big drivers there. PRESENTER: But if you were looking at cost in some, not to go too granular about it, and you’re suggesting there’s, what’s the figure you should be looking at? Is it the quoted annual fee on a tracker or a fund, is it the TER, is it something else? URSULA MARCHIONI: I would really look at two things, which are very much in line with what Brendan mentioned. One is the tracking difference. So if you take the last 12 months you can have a look at what the fund performance or the ETF performance was vis a vis that of the benchmark and look at the difference. Ultimately what you’re trying to do is to replicate the benchmark. So any drag or any underperformance versus the benchmark will be a cost for you. So I would look at that figure as the first one. And it’s very easy to source it and find it. And then the second thing that I would look at is the cost of entering and exiting a transaction. And there will be costs both for ETFs and index mutual funds. They will be passed on in a different way but they will have an impact on the outcome for you as an investor. So those two things in my view are really simple, there’s just two things, not too many, and they give a very good representation of what the outcome is. PRESENTER: Thank you very much. Now, Brendan, one thing we’ve mentioned a couple of times is things like smart beta. And a lot of the conversation until now has been framed about either being fully active or fully passive. Do you use smart beta in the portfolios? BRENDAN ASHE: I suppose we’re thinking about it. We do agree that there are factors that have shown persistence over time. There has been a glut of products hitting the market I think over the last couple of years, probably a lot of them I wouldn’t have a lot of confidence in. I think that any product that comes to market has to be giving access to a factor that is backed by robust research, also by an organisation that has been working with factor investing for a long time, not something that’s just been picked up in the last two or three years. And also a live track record, that’s very important as well. The other thing that maybe gets left out in the conversation on the smart beta bit is that factors aren’t independent of each other. They are correlated, they can be cyclical. So you really need to think about if you’re using factors within the portfolio you really need to think about when and how you’re going to use them, and how they impact with other factors. For that reason I think we think that for a lot of investors probably what a sensible approach is in this space is to find a fund that gives access to a multi-factor model that’s managed by a team that have a track record in this space. PRESENTER: I was going to say with passive product providers they’re obviously, sorry start that again. I was going to say in this space passive is obviously a growing area, but how do you work out whether all those passive products have got the talent behind them and the resource to back it properly? BRENDAN ASHE: Again it comes down to doing your homework. So Ursula’s mentioned it as well, I’ve mentioned that what you need to look at in terms of the quality of your ETF is the tracking error and then what’s the realised tracking difference. And there is going to be differences between the return of the fund and the return of the benchmark, and you need to understand the drivers there. And to understand those drivers you need to understand the portfolio management process. So just like an active fund you need to talk to your provider about how exactly they go about getting access to the benchmark. Because there can be changes, for emerging markets for instance in the past many providers have had to use ADRs or GDRs. But with developments across the network they’ve been able to gain access to direct equities, and that has a difference in performance. So these are the kind of things that you need to ask. And you need to understand if there’s some tax impact which may be positive. For example S&P 500 ETFs, they generally tend to outperform the net return in mix because of withholding tax benefits. That’s one example, another example of something that you really should understand in terms of the dynamics of the performance you’re going to, you can expect. PRESENTER: But Joe, how long does it take to get your head around this? Because if you’re an advisor and you say well that’s fine, but I’m used to buying funds, compliance department likes funds, why should I, how much work do I have to do to understand ETFs, get compliance to understand ETFs to make them part of my process? JOE PARKIN: So I think when you look at it I think with every fund you need to do your own due diligence on them. But when you actually break it down ETFs are just funds that trade on exchange that give you exposure to a given market. And if you do it with a brand that’s recognised, that’s had a long track record of doing it, I think in addition to what you were saying Brendan, I think there’s, in and around the product development process, I mean the product development process that we go through is incredibly rigorous to make sure (a) the market is liquid enough and big enough for us to even consider launching a vehicle in. you know, when you look at some of the bond markets, so we have to make sure that it’s okay in the first place. The second thing is the benchmark. And a lot of work with our benchmark providers and our index providers to make sure it’s the right benchmark. So in the high yield space it doesn’t have stuff in that particular benchmark that we can’t buy, or we wouldn’t want to hold in an ETF. And then I think the final thing is the portfolio management function. Anyone that thinks that we just have a computer algorithm just running these ETFs, managing fixed income benchmarks of emerging market benchmarks for example is a really difficult thing to do, and it requires systems. It requires scale, scale of product. And this is I think another thing that we think a lot about. The passive game is a real scale game. And you see this with the funds and how you run them. So an ETF as it gets bigger and bigger and bigger, it gets more and more liquid, so the secondary market’s more interesting. It also replicates often far better, because there’s more securities matching the benchmark. Obviously not in the FTSE 100 but where you think about a Euro AG index or when you think about the emerging market indices. And that’s why they’re becoming more and more interesting for institutional clients, very large institutional clients. Because they are larger, you can do large trades in them now. And so I think all this combining together is kind of. PRESENTER: Yes sorry, Brendan, I’ll bring you back in. BRENDAN ASHE: Just I think there is no easy option here if you’re looking for the most efficient product for your clients; you have to roll your sleeves up and do some work. I mean active funds that should take an adviser a lot of effort to get to understand. I think people should be prepared to put in the same effort on the passive side again if they’re committed to delivering the best outcomes that they can for their clients. PRESENTER: Now we’ve got a couple of minutes left, so I wanted to get some crystal ball thoughts going from all of you. We’ve talked about how this industry’s growing, but how do you see it affecting business models, particularly in the UK over the next few years? URSULA MARCHIONI: I think the impact will be noticeable. So at BlackRock we believe that the global ETF market is going to double in size in the next five years. So we’re thinking about a $6 trillion industry. And a lot of that growth will come from Europe and from the UK. The UK has been somehow at the forefront of the regulatory changes that we touched upon earlier, and are really impacting business models, are impacting advisers. And if you go back to what we mentioned earlier around the US market where 50% of the ETF ownership is in the hands of retail clients, and you match that with the big growth that we expect will come in Europe, I think you can really see how the revolution is really upon us, and it’s exciting. PRESENTER: Thank you very much for that. Joe, from your point of view, I mean you’ve been talking about things like this growth of digital, how do you see that impacting? JOE PARKIN: Yes, so just to be clear when I say digital I not only mean digital solutions to cater for clients within the advice gap, or millennials who might want it, or people that actually, actually digital’s not just about millennials. It’s about everyone who wants a digital, but it’s also about how do we make ourselves more efficient by digitalising. We have an expression anything that can be digitalised will be digitalised. And so I think that will make a big difference as well to the ETF market. I think everything is moving in the right direction. There’s a huge amount of tailwinds behind passive and behind the industry, and I really think we’ve just touched the surface with a large number of what are institutional wealth clients. And I think that’s going to move into certainly the adviser market, and is already starting to. And then while we’ve got a small base within the D2C or the end client market, that either with solutions that are designed for them that may be distributed through the retail banks or through robo advisers or through that sort of stuff. Again multi-asset, a lot of people hold out multi-asset funds. If you hold a multi-asset fund the likelihood is you are holding ETFs as well, which I don’t think a lot of people actually realise. So everything is pulling together and I think it’s very positive for the growth. And I think it’s just an exciting time for the industry. I think people are, I think RDR and the regulator has really, the items its redressed and the solutions that are going to be provided to the end client I think are super exciting. PRESENTER: And just on that, so do you see it as a threat to financial adviser business models or an opportunity? JOE PARKIN: No, I think it’s a massive opportunity. And I think people really need to embrace digital. And they need to realise that some clients, and millennials for example, they may never actually want to sit down on a quarterly basis or a six monthly basis and meet their adviser to discuss their portfolio. But they may want to Skype with them. And there are lots of companies popping up that enable customers to do this. And as well, so the old adage, when Uber rocked up it didn’t, the taxi driver still exists right. So I don’t want to make that necessarily a comparison but I think we need to embrace the digital world and work out actually what your clients really want. And also make yourself a lot more efficient in terms of how you can scale your business. PRESENTER: Thanks for that. And Brendan, from your point of view how do you see Coutts using ETFs in the future? BRENDAN ASHE: People talk about digital as this massive disruptor that’s going to end one business and create a whole new one. We don’t see that at Coutts. We try to serve clients in the ways that they want to be serviced. Some will still want to come in every six months and sit down with their advisers. Some will just want to go online and interact that way. So what we’re really aiming to do is give people the options, all the possible touch points that they want in order to engage with us. What does that mean for asset flows? Again we’ve been long term users of ETFs. If client demand picks up we will meet that demand. But again I think the key point is what does the client want, and how is that delivered to the client? Rather than say looking at an asset class and kind of wondering well how does that increase growth there? PRESENTER: We’re out of time. We have to leave it there. Ursula Marchioni, Joe Parkin, Brendan Ashe, thank you all very much.