Demonstrating investor value is not only crucial for ETF providers with an existing or planned presence in the UK market. In time, the FCA’s decision to take an assertive stance on investor value could influence, or be copied by, other regulators.
That is particularly true in Europe, which already sets high standards for costs, charges and suitability via MiFID II. Irrespective of the future relationship between the UK and the EU, we would expect the FCA to continue to set very high standards for investor protection. The recent ESMA paper on applying UCITS standards also shows that European authorities will continue their focus on costs and disclosure.
In the longer term, the wider adoption of value assessments could have far-reaching global implications for the global ETF industry, especially, in major retail markets, such as the US, Canada or Australia.
The debate on investment value is evolving rapidly. The strengths of ETFs as a low-cost investment vehicle must not be allowed to give promoters a false sense of security. Value is about much more than management fees.
The UK is currently driving the agenda by requiring providers to demonstrate that they deliver value. Promoters in the UK need to understand the full implications of the new requirements and ensure they’re ready to demonstrate that they have performed the value assessments.
Looking ahead, firms should consider how the FCA’s actions and the wider value agenda could impact operating models around the world. The largest firms in the industry should consider developing global frameworks that follow best practices in demonstrating value for money.
Ultimately, this may require the ETF industry to adapt its cultural focus on low management fees into a more holistic approach toward investor value. The industry has consistently been ahead of the curve on costs, but will need to demonstrate fresh leadership if it is to fulfil its long-term retail ambitions.