April’s edition of the ETF Express podcast, Off the Record, sees us delving into the retail audience with a conversation with Jeff Prestridge, Personal Finance Editor at Mail on Sunday and the Daily Mail, and Allan Lane, co-founder of Algo-Chain. Jeff has strong and challenging views on ETFs, more on their marketing, saying a lot more could be done to make them more appealing to investors and dismissing the information available on ETF websites as ‘almost unpalatable’. Prestridge also has controversial views on ESG, which he describes as ‘not fit for purpose’.
Listen to our heated discussion which covers RDR and Lane’s view of the law of unintended consequences which in turn explains Prestridge’s observation that RDR has made it difficult for the man or woman on the street to get financial advice.
This episode of Off the Record is sponsored by Truss Edge, providers of front, middle and back-office software and services to ETF issuers.
April’s edition of the ETF Express podcast, Off the Record, sees us delving into the retail audience with a conversation with Jeff Prestridge, Personal Finance Editor at Mail on Sunday and the Daily Mail, and Allan Lane, co-founder of Algo-Chain. Jeff has strong and challenging views on ETFs, more on their marketing, saying a lot more could be done to make them more appealing to investors and dismissing the information available on ETF websites as ‘almost unpalatable’. Prestridge also has controversial views on ESG, which he describes as ‘not fit for purpose’.
Listen to our heated discussion which covers RDR and Lane’s view of the law of unintended consequences which in turn explains Prestridge’s observation that RDR has made it difficult for the man or woman on the street to get financial advice.
This episode of Off the Record is sponsored by Truss Edge, providers of front, middle and back-office software and services to ETF issuers.
Beverly Chandler
Hello, my name is Beverly Chandler and I'm managing editor of ETF Express, and I welcome you to the latest edition of Off the Record, the podcast about all things ETF brought to you by ETF Express in partnership with Truss Edge, providers of front, middle and back office software and services to ETF issuers. All views expressed in this podcast are the speakers’ own and we hope suitably controversial. Today we're going to address the slightly slow take up of ETFs in Europe by retail investors. Invesco told us this week that the pace of net inflows into EMEA ETFs jumped to $14 billion in March, bringing total net inflows for quarter one to a robust $42.6 billion. The quarter one 2023 net inflows not only marked an acceleration versus quarter four 2022 when ETFs attracted 27.2 billion in new net new assets, but it was almost half of the USD 87 billion net new assets total raised in the whole of last year. But European ETF assets remain dominated by institutional investors and I'd hazard a guess that most private investors across the continent and in the UK have no idea what an ETF is. Is this due to a lack of education or a lack of suitability? To discuss this, I'm really pleased to have Jeff Prestridge on our podcast this month. Jeff has been a personal finance journalist for more than 25 years and is personal finance editor for the Mail on Sunday, a paper he joined in 1994. Jeff has led campaigns on a whole variety of key issues for investors, such as bank branch closures, better pension protection for workers, an improved deal for people in income drawdown, protection insurance that can place claims rather than declines them, and the scourge that he calls the copycat government websites. He's a big believer in personal finance education. Allan Lane makes up our conversational grouping for this outing of Off the Record. Education is key with him too, not least as his firm Algo-Chain must be the only creator of model portfolios using ETFs that's run by two people with PHDs. Allan and his business partner Irene Bauer. Previous roles for Allan have included head of product research at Black Rocks iShares and his current outing as an entrepreneur has him offering AI driven model portfolios based on the Algo-Chain extensive ETF database. So I'm going to open by asking: Jeff, I really don't know what answer you're gonna give me, so I'm gonna ask you, what is your view on ETF's?
Jeff Prestridge
Well, I I think they're, you know, an important part of the investment matrix available to retail investors. You know, they're cheap in terms of cost and and a lot of them, not all of them, Beverly, are quite simple to to understand, so I think they're an important part of the the kind of retail investment furniture. But you know I I I I I think there's a lot more that could be done to make them more appealing to investors, I I think they are very much provided by institutions that don't really have a feel for the end user, you know the the readers of the Mail on Sunday, the readers of the Daily Mail. So I think there's a lot more work to be done. But I have no problem with the concept of an ETF.
Beverly Chandler
And Allan, do you want to comment on that of what Jeff’s just said, because I think that's really interesting for our completely focused ETF audience.
Allan Lane
So when I hear your question of course, what I hear is, “Allan, what do you think about ETFs versus mutual funds versus unit trust?”. Actually I'm going to answer this in an oblique way. If you look at the US market for ETFs, actually the the SEC changed the legislation 18 months ago. And to cut a long story short, you've now got a lot of active managers putting product through an ETF wrapper. They're also putting pseudo structured products with, you know, well, for example buffer ETFs where, you know, they manage the risk dynamically. Anyway, the point of my comment is that in the end you've got fund management ideas and sort of skills coming through product wrappers, and the product wrapper is only a wrapper, so, you know, one day in the UK again we won't have the problem with the labelling, it will be much more how much education is there going on? Do we feel the, you know, the the population needs less of it because they're up to speed or not. So ETF is just a word. It's an industry.
Beverly Chandler
So Jeff, you mentioned that ETF issuers just aren't recognising their audience, and what do you think they could do better to to make ETFs more visible?
Jeff Prestridge
Well, I certainly think they should improve their marketing material, Beverly. Whenever I go on websites to search for details about particular ETFs that maybe have have been mentioned to me by financial advisors or investment advisors, I I find the information before me almost unpalatable. You know, it it it I I think maybe it's a result in part of regulation, you know requirements, you know given that they are are they are listed vehicles. But there's nothing not and and and I know Allan worked previously for Black Rock and I was in Black Rock’s offices the other day and I saw a big advert for for iShares. But I I I I I I don't think any of the big ETF providers have come up with retail friendly marketing information about ETFs. They're very good, you know the investment managers are very good at it when it comes to, well they're getting better at it, when it comes to, you know, traditional unit trusts, investment funds and stock market listed investment trusts. But on the ETF front I I just don't think they're retail friendly enough. That that they're, to me, they're almost cloaking institutional speak.
Beverly Chandler
That’s absolutely fascinating, yeah.
Jeff Prestridge
You know people need. Most people, you know, most of the people that I speak to who are long term investors, they they want simplicity. You know they they want to be able to read information that that, that that you know they finish and they understand. And I I don't think there's enough of that out in the ETF space. But Allan may may disagree with me and I think Allan's probably got a far better hold on the sector than myself. You know, I fleet in and fleet out like all journalists do. You know, I'm an expert for the for the day when I write about ETFs and then I'm an expert on income protection the next day. Allan, I think probably you know his view is is one that I respect and and and probably is is is more apposite.
Beverly Chandler
So Allan, I know you've got some data, right? You've pulled up some numbers on how much cheaper it can be to invest using ETFs. Talk me through that.
Allan Lane
Well, let's deal with the headline. The headline is that both in the UK and the US, there's downward pressure on fees and that in many ways is good for the end investor, isn't it? The the reason it might not be is that if you push businesses to basically run loss leaders, then eventually that's not good for anybody. So I I myself have moved away from just constantly thinking the lowest price is the best, but. So all you know, all, all, all the lines, unit trust, mutual funds and active funds, ETFs. You know the prices are coming down, but actually it's it's naive for us to think that ETFs are universally the lowest product in all cases. Because they have been pushed into a low price, you know, sort of corner, what they've found is when there is an opportunity to offer a premium fee, they will do that and that's called business. But if you know for, for listeners who are who, who needed some little tiny bit of guidance here, then. In in the ETF space, when you're dealing with what I call the mainstream exposures, you know exposures to government bonds or to large cap equities, then you know the fees are really pushed down. You know you can be talking anything as low as 7 basis points and you know if you're paying 20 basis points, that might be, for some slightly, you know, t-Tier 2 sort of index. But of course as you go up the product spectrum, then don't be surprised if you might be paying 60 or 70 for a themed exposure. You know, so they're not all at 20. But of course as we move to unit trust then they they they do generally cost more. The figures you know it might be 85 basis points for example, and you know let's let's not put too much weight on those firms that, you know, are price gouging, that are charging too much. And I'm I'm not talking, sorry, about unit trust, but I'm talking in the finance industry. They're they're outliers, that's not really what what concerns us, I mean they maybe, maybe they shouldn't exist, but that's not the point. But you know mutual funds, you know that that you know, the competition is such that maybe they're having to come in with a wholesale price, which is below that of boutique ETFs so, so, it's not all about price, it's about service and the whole experience. So you know, I'd probably agree with Jeff that, you know, there is an onus of the, you know, fund management industry to make sure that they're they're doing a better job talking to the end investor. The end investor, not the intermediary.
Jeff Prestridge
Beverly can I just add to what Allan’s just said? I mean I I do think. The imperative for me, and I think the imperative for the investment industry, is to widen its appeal. The fact is, we all now have to kind of prepare ourselves for, you know, a future when maybe we're not employed, that we're semi retired. And that means putting money into, you know, tax friendly wrappers such as ISAs and pensions. So my view is, I I'm not really that bothered about whether the the investments that people put into their ISA or their pension or an ETF, a unit trust, an investment fund, an investment trust. The key is to convince people about the long term financial advantages of investing. And I think the investment industry, and I talk about that very generally, hasn't done a very good job in terms of marketing itself and selling it where its wares to the general public. And you know we, we, we currently have a campaign that's been headed by Archie Norman of Marks and Spencers about Share Your Voice. And really he's talking about the fact that small investors, and you know I'm a small investor in in many ways in terms of how much I've got in the market, and in terms of my height. But they have been disenfranchised, they don't have a voice, and and you know and and what has happened as a result of that is that investment companies have actually lost contact with the people whose money they are looking after. That is crazy. Absolutely crazy. So we we we you know I I think people like myself as journalists, Allan as you know, a a very important part of the investment community, we all need to do more to persuade people about the financial advantages of investing for the long term. That to me, is the the key objective and it should be, you know, the overriding objective of investment companies, you know, throughout the country and across the globe. Irrespective as to whether their specialism is active management or ETF provision.
Beverly Chandler
And what do you think about Robo-Advisors?
Jeff Prestridge
I don't, I don't have a problem with that. I mean, you know, I don't have a problem with, with, with innovation, Beverly. You know, we're we're we're there will be people out there who will be drawn to robo-advice. So you know I'm a big believer in innovation and and you know ETFs certainly weren't around when you and me, Beverly, started in financial journalism.
Beverly Chandler
We'd only just discovered fire, Jeff.
Jeff Prestridge
But but they, you know, they've been a great innovation, and and and and so robo-advice. Bring it on, and let and let the public then decide what suits them. You know if one of the benefits of robo-advice is that it gets more people interested and involved in looking after their long term financial matters, that's brilliant. It gets the thumbs up from me.
Beverly Chandler
And Allan, you, you're not a Robo-Advisor, but you offer model portfolios based on AI and algorithms, and what's the feedback from your users? Are they, are they individual investors who come along and put their own portfolios together, or are they daunted?
Allan Lane
Ohh, we’re a B-to-B business, but it does mean that some of our clients are ones that do serve that channel. Now, it's been you know that that idiom’s been in existence long enough now for us all to take a very measured view of it. And if in some quarters that it has not been as successful, it's simply because it doesn't marry up to the service model that maybe the business was hoping. So UPS famously closed theirs down, didn't they? Because once they got over the euphoria, they thought but hang on, we're trying to deliver a premium service here and it, you know, it conceptually doesn't fit. Going back to another point that Jeff made, which to me is the utmost paramount point, is the days of a pension scheme coming from, you know, stage left is not anymore and therefore everybody's got the responsibility to figure out what they're going to do. You know, a lot of these strikes in Britain of the last few weeks and months are based on, you know, long term wealth or not having enough of it. So, and just to add some jargon now, that we've got the cult of the ETF savings plan that starts to take take off in Europe, Germany's been quite a hotbed for that. And it's based on the principle that through your employee, you might start putting money away into a ETF savings plan. Now of course that could be, you know, unit trust savings plan, let's not forget that. It's just a, but to me, to me, I'm going to be happy when on my TV at home as I toggle between channels 501 and 502, that’s Sky and Bloomberg, that I can get that same feeling. You go to Bloomberg, it's full of financial information and you're going OK, yeah, you know. But the mainstream channels, they should be raising the awareness and I'm back to the education thing, we, we've we've never been as a nation on top of the the business case to the level that I would like to see. And that’s perhaps generally, but specifically with investing and given that everybody's future livelihood depends on coming up with a way to protect their future wealth, then they'd better get with it soon.
Beverly Chandler
So this morning and I think last night we had this report that I think Britain is the least numerate country in the world I think virtually. And and there are proposals that numeracy obviously will be studied up till A level, but also an offering that might include financial education. I don't whether anyone else has heard that. Jeff, have you heard about that?
Jeff Prestridge
Yeah and and I I think, I mean Allan's you know, hit the button right in the middle because I really do think the key here it's actually starts back in school, you know. Yes, I mean, I'm I'm all for Rishi and his numeracy drive but to me I think what's more paramount is financial education and that should start in the schools, maybe continued through further education, and also through the workplace. There's a hell of a lot that can be done by employers to make people, you know to make their workers feel more responsible for the, you know, the pensions that they contribute to and their employer contributes to. So and and and I I think there is probably too many restrictions in that space at the moment and and and I I you know I think a lot of people trust their employer. You could question that. And and and and and through as a result of that, Beverly, I think people would probably trust any financial investment advice, and I use advice in inverted commas, that comes through the workplace. Whether it's, you know, through a third party, probably that's the best way to do it. But but but I I think the workplace is a great place to reinforce this message that we all have to take responsibility for ensuring we have enough in our later years, of which I'm in at the moment, to take us through to the the glorious end.
Beverly Chandler
And what I'm I'm just gonna refer to RDR briefly because as Allan mentioned across Europe, the particularly Germany, they seem to be very fond of the savings plans, and they seem to have really adopted, they're often based on ETFs, which is why we talk about them. But other countries not so much. And as you know, might know, there's a European push to try and enforce, not commission-led approach to investment advice across Europe. We've had RDR in the UK, do you think it works?
Jeff Prestridge
Yeah, I I don't I I I I don't think so at all. I mean, you know, I I still meet with a lot of financial advisors. You know, I sometimes speak at dinners that they arrange and and most of them are actually they're very critical of of of RDR. You know my view on it is it it it it it's good in some ways. Uh, in terms of the fact that, you know, you take commission out of the equation, but but but what it has done is make financial advice far more exclusive than it has ever been. And it's very difficult now for the the man or or the the average man and woman on the street to get access to financial advice, which is why you know we now have Robo-Advisors coming in, so, so, so, so in a way that's a it's it's a an unfortunate consequence of RDR, of which the motives behind RDR I don't really have a problem with because we had to drive some of the charlatans out of the financial services industry. But, but you know advice really, Beverly, should be available to all, not just the well to do.
Beverly Chandler
Allan, do you have a view on that?
Allan Lane
Yeah, one of my favourite observations is the law of unintended consequences, which seems to be the number one law, actually. So RDR perhaps could fit that category. I think more recently we've seen it in spades, dare I say that, and that is because the UK has not been very friendly to digital crypto products. And we can see why, I mean, there's been some charlatans beyond all biblical scales there, however, if you can't help but admit that in that last two year period the whole of the, you know what's going on in the shadows, every every other person's been a crypto trader and it's been I guess, you know, that certain audience had been forced into the view that that is the only way they're going to get wealthy. And that's not really what was intended, so I'm really supportive of one of our clients up in Stoke, in the Stoke region, who is, he you know, he runs a full planning advice and he's looked at this and he thinks, isn't it a missed opportunity that there's a whole target audience that think that's the way to actually look after your wealth again? And you know, so, I'm not saying the FCA should be regulated tomorrow, that's not my point. But I'm you know, so I've done two V, two TV channels 501, 502. Let's do 503, that's the BBC. So we've all been brought up to know what happens when the BBC says “You can't play that song it's banned”. It goes to number one. You know, the law of unintended consequences. So the delicate balance between regulation and getting something to happen is actually the the real challenge and, you know, maybe employees need to step in, employers sorry, as you know, as well as the educational, you know system.
Beverly Chandler
And Jeff, just cause we've got you, you're a live person who actually talks to retail investors more than most of us do. Do you get a feeling for their appetites? I mean, obviously in this context, we'd be interested to hear if they are interested in ETF's. But are they interested in ESG or crypto or some of the big themes?
Jeff Prestridge
No, I confess that most of my readers are older than myself, which I think is quite amazing, really. But but, but I I don't think crypto is is something that excites the readers of the Daily Mail or the Mail on Sunday, what they do have a a thirst, an appetite for, is our investments. Investments that will provide them with financial security, which will provide them with a stream of income in their latter years. I I I think there's too much complexity in financial services Beverly, and I I think sometimes we I don't know, we we over complicate the financial services market. And and there are some fantastic products out there, some fantastic investment funds out there, which are hardly, you know, they they they lack the the kind of excitement. You know, they lack buzz. But as long term investments I I I I I I think they're tremendous you know, providing people with a mix of capital and and income return. So I mean I've I I I don't like I I I've I've written very little on Bitcoin. Very little positive about Bitcoin. I'm not a crypto currency fan.
Beverly Chandler
My other thing was ESG do you get a feeling that?
Jeff Prestridge
ESG to me, I mean I I think the current system of ESG is just so misleading and and and I and I genuinely don't think, and and maybe my audience isn't the younger generation Beverly, and I think maybe the appetite for ESG amongst younger investors is greater than those that that tend to read newspapers such as the one that I work for, or the two that I work. Also, I think ESG at the moment is not fit for purpose. I I think it's full of holes. I think the label is misused, it's abused and and I think really the regulators attempt to make it fit for purpose is half cocked.
Allan Lane
Which of the many ESG systems? That that I think the there's too many ESG frameworks aren't there and that's, you know.
Jeff Prestridge
Yeah.
Allan Lane
Jumping in there, I think that's really the problem, I mean I can see, I can imagine Beverly is, what she's thinking here because she's written positively about ESG for quite some time. And you've just torpedoed her her her good ship you know of good causes below the waterline. But jumping in, yeah, it's definitely the sentiment is absolutely fantastic. But once you put too many too many frameworks, we have a job you know, I don't know how to label them actually because I have to peel off the labels on a Saturday night and reprice them on a Monday with a different name, you know?
Beverly Chandler
Well, I'm absolutely fascinated to hear those views, that certainly I think is going to be. Honestly, folks, when you hear this, I want answers please on lovely green cards because as Allan and I know we spend our lives being told a great deal about some very, very technical definitions of ESG and also its growing demand. But I think you're right, Jeff there is an age, there is an, it is a younger audience that cares more about it maybe.
Jeff Prestridge
Yeah I I I think the trouble with ESG Beverly as well is that it's so broad and it is so open to interpretation, and and often people are more interested in the E than they are in the S and the G. And somebody's E is not their neighbours’ E if you know what I mean.
Beverly Chandler
I do know what you mean. And in fact the G seems to, I think that when Allan and I first met, this is one of the first things we ever discovered. We met doing a TV interview and we both knew that it’s actually the G that makes a huge amount of difference in a portfolio and I think I've just read a, I've written up a study about that again. Oh, a lovely interview this week with a nice lady from Candriam, Alexandra Russo, who pointed out about the G issue, which is why they weren't invested in Credit Suisse, which has got to be a very active example of where this works, but I get your point. Yeah, look lovely people, we're running out of time, I have no more space for you to be controversial in. But you have been really interesting and I'm really grateful to you. So I'm just going to say thank you to our guest, Jeff Prestridge of the Mail on Sunday and the Daily Mail and Allan Lane from Algo-Chain on this outing of off the record from ETF Express. Thank you.
Outro
Off the Record is brought to you by ETF Express in partnership with Truss Edge providers of front, middle and back office software and services to ETF issuers. Production by Imogen Rostron and Lisa Hines and music by Otto Balfour. Thank you to our guests on this episode of Off the Record from ETF Express and to you for listening. We look forward to you joining us next time.