What is driving the digital revolution in ETFs?

Scalable Capital, Trade Republic, Bux, Chase UK and Revolut spearhead the disruption

Jamie Gordon

Scalable Capital broker

Gone are the days where investing for retirement was mainly an American phenomenon. The modern European investor is calling for fintech solutions and low-cost, diversified, transparent investments – and at the intersection, digital ETF investing is leading a revolution against archaic wealth management.

Europe’s investment culture has been defined by individuals subject to either costly investment platforms or advisers potentially receiving kickbacks from asset managers for selling high-fee funds, with the funds themselves often carrying high entry charges and potentially even ‘black-box’ methodologies that underperform.

Speaking on advisers and the retrocessions they often receive to recommend products not in their clients’ best interests, EU commissioner for financial services Mairead McGuiness said end investors have been the victims of clear “conflicts of interest” while cost-effective products such as ETFs “are hardly ever recommended”.

How is the average retail investor to navigate these troubled waters? Enter ETFs and the neo-brokers, robo-advisers and challenger banks championing them.

A continental shift

The seismic shift began in Germany with retail model portfolios and savings plans – ready-made baskets of normally passively-managed ETFs that facilitate regular investments over the long-term.

Demand for ETFs soared following the COVID-19 pandemic, with monthly investments booming 254% from €166m to €589m between 2019 and 2021 in Germany alone.

Thanks in part to the roll-out and popularity of ETF savings plans, the country now boasts the largest ETF market in Europe with a 27% market share, according to Blackwater Search & Advisory.

A BlackRock and YouGov survey recently predicted an additional two million German investors will invest in ETFs over the next 12 months, with 20 million expected to use savings plans by 2026.

This supercharged growth is not confined to Germany, however, with 13 other European countries expected to contribute a further 4.6 million investors in just the next year, courtesy of 834,000 new ETF users in Italy, 576,000 in the UK and a significant one million from the Iberian Peninsula.

Looking toward the horizon, 63 of 70 executives in PwC’s recent ETFs 2027: A world of new possibilities survey believe there will be either “significant” or “moderate” demand for ETFs from European retail investors in the coming years.

BlackRock forecasts ETF investments through digital platforms in Europe will total €500bn by the end of 2026, led by 10 million new users over the preceding five years.

The disruptors

Spearheading this new investing paradigm are a band of newcomers that have already made waves among the ‘usual suspects’ of asset management.

Front and centre among these is Munich-based neo-broker Scalable Capital, which was founded nine years ago and has been backed by BlackRock in multiple funding rounds. Scalable Capital now operates across six European countries and hit one million client savings plans in January 2023 – with 90% of all money invested in ETFs.

Julius Weller, VP broker at Scalable Capital, told ETF Stream: “Together with the rise of digital investment platforms providing simple and intuitive tools like recurring investments through savings plans, ETFs have played a vital role in the increase of retail investors’ participation in European capital markets over the recent years.

“With private pension provisions becoming increasingly important across countries in Europe and the rising inflation levels in the previous year adding a sense of urgency, [retail investment] growth figures are likely to continue.”

Not resting on its laurels, BlackRock doubled down on its European retail bet this year by partnering with Amsterdam-based wealth platform Bux to launch ETF savings plans across eight countries. Investments start at just €10 a month with €1 commission per trade.

Elsewhere, Berlin-based firm Trade Republic made a splash ETF by extending its savings plans and trading across 2,400 ETFs to 17 countries in Europe last year.

While some might question why these savings plan architects would opt for ETFs over legacy instruments in their funds of funds, the intraday trading offered by ETFs could offer the likes of Scalable Capital and Bux a cheaper means of accessing a strategy by allowing them to set their own rules about trading portfolio components at particular times of day.

Arguably even more exciting is the trail being blazed by challenger banks offering ETF investing direct from their mobile apps. This started in February with JP Morgan’s Chase UK incorporating Nutmeg – the ETF-focused robo-adviser business it acquired in 2021 – into the ‘Save and invest’ page of its retail banking platform.

Last month, fintech darling Revolut joined the race, partnering with Berlin-based Upvest, to offer 155 vanilla equity, fixed income, commodity and thematic ETFs to its customers with trades starting as low as €1.

Should these forays prove successful, it is surely only a matter of time until other banks follow suit – especially those such as HSBC with asset management businesses offering ETFs that could benefit from captive assets in model portfolios launched on its own banking app.

Incumbents evolve

Familiar faces in investment are also hardly sitting idly by as these events unfold. While BlackRock has invested and partnered with digital wealth disruptors, Vanguard also extended its reach by launching a German retail model portfolio service last year – before debuting direct investing in ETFs in 2023.

Since launching its UK direct investing platform in 2017, Jack Bogle’s passive giant saw the share of its UK assets housed in ETFs jump from 9% to 20% by 2022. Hardly sluggish given its first UCITS ETFs launched only 10 years prior.

Other ETF issuers are also mindful of the digital-led retail revolution.

Matteo Andreetto, head of SPDR EMEA at State Street Global Advisors, told attendees of ETF Stream’s ETF Ecosystem Unwrapped 2023 event: “Digital wealth is growing and accelerating across the continent. We are talking about one German out of four having an ETF savings plan by 2026 so there is clearly some big potential growth waiting to happen.” 

Caroline Baron, head of ETF distribution EMEA at Franklin Templeton – which last year targeted Italian retail by partnering with trading platform Directa – added: “If you look at the robo-adviser space, which has developed beyond Germany and the UK, it tends to be synonymous with ETFs.

“After years of thinking the retail market will not develop as quickly as we thought, we are now on an acceleration path and this is across Europe, not just two or three countries.”

Even players traditionally not heavily involved in ETFs are taking note, with the UK’s oldest DIY platform Hargreaves Lansdown launching ETF-based multi-asset funds and M&G Wealth and Moneyfarm partnering to launch &me, an investment platform with six portfolios built wholly are partially from ETFs.

Christian Bimueller, head of digital distribution for continental Europe at BlackRock, has long advocated for ETF-based wealth tech as a route for millions of Europeans looking to invest for the first time.

“This growth has been in part due to the phenomenal versatility that digital investment platforms offer. Investors can capitalise on low fees and minimum investments while new investors can build investments and knowledge of financial markets in an easily accessible format,” Bimueller added.


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