Most of us agree that enhanced ETF education is needed across Europe to grow assets under management, but the question to enlighten the masses remains unresolved.
Why now? After recently moderating an ETF distribution panel at the ETF Stream’sETF Ecosystem Unwrapped 2022 event, there was an attendee who wrote an article about the panel lacking specific suggestions on how the industry can tackle the issue of ETF investor education.
It is certainly an easy concept to understand and one which most agree on but it is not an easy problem to solve given the breadth and various avenues one can take to accomplish such a feat.
And who needs education? Certainly not institutional investors who handle products much more complex in nature than an ETF wrapper. Independent financial advisers (IFAs)? They receive one-on-one attention from various ETF issuers’ sales teams and education is provided there.
So, let us focus on the area with the least access to ETF information but also have the most upside for ETF growth and adoption; the retail market.
Interestingly, the same conversation was being posed at US ETF conferences around 10-15 years ago prior to massive retail adoption in the US. It is not a stretch to make the comparison of Europe’s current environment with that of the US back then.
As it stands, European retail ETF usage is less than 20%, which shows there is low demand within that channel despite growth in some regions like Germany. Furthermore, there are few external factors incentivising IFAs to promote ETFs to their clients. Ultimately, they (IFAs) are the primary source and direct link to the retail community but have minimal motivation to teach ETF 101. School is not in.
Here is a look at the three main hurdles to ETF education:
Resistance to the idea of ETFs, i.e. private bankers, traditionalist advisers who still receive hefty retrocession fees, and cultural differences within each country -- Europe is not homogeneous.
Lack of transparency on who needs to be educated and how to reach them -- sure you can provide educational materials on your website but how do you attract them to your site in the first place?
Is the need for education as simple as ‘what is an ETF and what are its benefits’? Or is it something more complex such as underlying liquidity, incorrect assumptions of lack of trading volume, etc.?
Solving hurdle number one is not going to change overnight and requires regulatory intercession such as making retrocession disclosures more visible and not hidden within the depths of fine print. And why not require all financial professionals to verbally -- and in writing -- disclose that there are other products available that do not pay commissions? Maybe that is a stretch and clearly unlikely to happen in this lifetime.
Solving issues number two and three are not so easy either. However, one of the conference panellists suggested more involvement from the media, which makes sense. While it is not their responsibility to educate, it can only help to have increased ETF coverage because most people, whether retail investors or highly sophisticated Institutional, engage and navigate toward the media in some format.
Unlike the US ETF media coverage in Europe is somewhat lacking
ETFs have been around for three decades but the Financial Times just started focusing on this area within the past few years. Aside from the FT, there are smaller outlets focused on the ETF ecosystem players such as ETF Stream and JustETF but while they provide good coverage, it is doubtful many investors outside of the ETF ecosystem are reading those sites religiously.
It is worth noting that Bloomberg has decent ETF media coverage for US-listed ETFs, there is very little seen on the Europe side. As a side note, the Bloomberg Intelligence team does an amazing job covering global ETFs but their reports are in most cases only accessible through a Bloomberg terminal.
And let’s not forget educational materials provided by ETF issuers. Here is the thing, you can have all the 101 guides floating around on social media and on a firm’s website but how do you lead the uneducated investors to those guides? It is like trying to convince the entire public on the benefits of regular exercise -- you cannot convince everyone and you certainly cannot force someone to actually do the workout.
Google, please find me ‘ETF education in Europe’
As an experiment, we googled ‘ETFs 101 Europe’ and here is what popped up:
VanEck, KraneShares, TrackInsight, Horizons ETFs (Canada always generous and friendly – thank you!), the Investment Association: ETFs a Beginners Guide from 2018 (which feels like ages ago), and finally BetaShares, which like Horizons ETFs is not based in Europe but in Australia.
Interestingly, the first four Google ads were from platforms – FlowBank (mention of ETFs but could not find educational materials on their website), Degiro (some information but not extensive 101 although bonus of no trading commissions), Credit Suisse – shocker alert – leading you to their investment solutions and nothing to do with ETFs, and Selma Bank (no ETF mentions just another ad squatter. Tiny disclosure: this is being written while in Geneva hence the Swiss firms).
The need for ETF education is not new and let’s be honest, ETF issuers have a slew of regulatory required documents that they must produce to protect the retail investors but who reads that? A nice curl-up with a glass of wine, cosy fire and a 267-page prospectus in size 8 font? And the term “buyer beware”? This is lingo we take for granted and retail investors do not know enough to be aware that they should be aware!
Solving this problem, our take
So here is our humble suggestion for ETF issuers who want to get closer to solving this problem and our guess is these ideas are already in the works behind the scenes.
Create an internal ETF education task force that consists of someone from marketing, distribution and perhaps an ETF specialist (the non-sales person who can get deep into the weeds) to create a roll-out plan to platforms, robo-advisers, larger wealth management firms, etc.
Assign one contact person who acts as a relationship manager (if it does not already exist, it should) to these firms to provide them with free educational materials that is actually beneficial to their client base.
Not just the required KIIDs, fact sheets, etc. The first step is providing ETF 101 materials on not only what is an ETF but the benefits, any negatives and how investors are currently using ETFs, etc. This helps them build out content for free on their site and in-turn the ETF issuer is assisting with the much-needed educational process.
This is not one firm job -- we all need to get our hands dirty.
On our end, we plan to continue producing and expanding our ETF content. It is important to increase the awareness of the numerous benefits of ETFs and hopefully, collectively we can reach the untapped area of the retail space.
Andrea Murray is head of business development at Blackwater Search & Advisory