Terry McGivern, fund manager at AJ Bell, has called on the ETF industry to exert more pressure on UK platforms with legacy technology to face-up to issues with ETF trading.
Speaking at ETF Stream’s ETF 2025 conference, McGivern (pictured) said there is a currently a “chicken and egg situation” with UK platforms, who claim the demand is simply not there for them to justify making the technological changes required for efficient ETF trading, while the ETF providers claim there is demand but they do not want to because it is too expensive.
This is one the biggest issues facing the wholesale UK ETF market. For example, as part of ETF Stream’s Expert Investors series, Richard Philbin, CIO of Wellian Investment Solutions, said his allocation to ETFs would “significantly increase” if platforms made the changes required.
On many platforms with legacy technology, investors are unable to do fractional dealing meaning ETFs are only traded in whole shares, which increases the risk of holding too much cash and creates different weightings between model portfolio investors.
McGivern said: “Fractional dealing is a game changer for the UK ETF market. Advisers are not buying ETFs because some platforms’ capabilities are lacking however, the legacy platforms claim the demand is not there to make the required changes. It is a real chicken and egg situation.”
One solution, McGivern suggested, would be if the legacy platforms partnered with the new entrants, which likely have better technology and are able to fractionally trade ETFs already, instead of having to build a whole new infrastructure.
“It may not be the answer to do it ourselves, but instead work with the new breed of provider,” he continued. “The synergies would go hand in hand.”
The fund manager went onto say the suspension of the Woodford Equity Income fund last week could push many investors into ETFs, however, education issues remain.
On 3 June, Woodford Investment Management announced it had suspended trading on the £3.7bn Equity Income fund amid liquidity concerns following a string of outflows dating back to 2017.
"The UK funds industry is still dominated by the star fund manager and the mutual fund structure," McGivern commented. "There is not enough being done by the fund industry to promote ETFs, as they obviously have more to gain from multiple share classes and preferential fee structures on mutual funds, versus the more democratic ETF single share class structure, where price cuts are applied equally to all investors.
"At AJ Bell, we are very keen to tackle the education issues around ETFs and show investors the benefits of holding these products."