Speaking exclusively to FSA‘s sister publication, International Adviser, Frank Spiteri, head of distribution at ETF Securities, said the company decided not to renew its asset management licence with the Hong Kong Securities and Futures Commission (SFC) to focus on targeting financial advisers in Australia, where its assets under management have reached $100m.
ANZ joint venture
In May 2015, the company launched a joint venture with ANZ Bank – one of the ‘Big Four’ banks in Australia – to distribute its ETF products via the bank’s tied advisory network.
Spiteri explained that the three products available in Hong Kong – the Physical Gold ETF, Physical Silver ETF and Physical Platinum ETF – “didn’t fulfil the potential” which led to their delisting in August last year.
“The licence in Hong Kong has expired. We had products listed there and it didn’t fulfil the potential. We closed that office down.
“The reason being is because at the same time we have signed a joint venture in Australia with ANZ Bank and we’re looking at building that platform,” he said.
No Asia plans
The former equities trader, who joined ETF Securities in June 2014, added that the company currently has no immediate plans to target Asia but said “it is on the horizon” once it has built out the “Australian proposition”.
“We [ETF Securities] now have $100m under management in Australia, which we’ve built up in just over a year and we’ll use that as the platform into Asia. We’ve still got Asia in mind in the long term but the focus now is Australia,” said Spiteri.
The exchange-traded funds provider, which has offices in London, New York and Sydney, is hoping to get $250m assets under management by the end of 2017 by targeting the country’s financial advice market.
Spiteri estimates that financial advisers in Australia have nearly $1trn of assets under management and unlike the UK and Europe, ETF distribution enjoys a 90/10 split in terms of retail versus institutional.
Historically, the market has been dominated by the ‘Big Four’ banks – Commonwealth Bank of Australia (CBA), ANZ Bank, National Australia Bank (NAB) and Westpac.
“If you look at ETF use globally then in the US the breakup of ETF usage between retail and institutional is 50/50. In Europe (ex-UK), the stats are around 80/20 in favour of institutions. The UK is even tougher than that, It’s 90/10 so just 10% in retail,” he said.
Australia is a particularly attractive market due it’s superannuation schemes – a state-backed private pension arrangement where people invest in funds that will replace their income on retirement.
“Rules and regulations mean individuals have to put in a certain amount into their pensions and those assets are managed predominantly by financial advisers who are now using ETFs as part of their investment strategy,” said Spiteri.
Banks in trouble
He added that he was unfazed by recent controversy surrounding Australia’s top banks, including ANZ.
Last year, the ‘Big Four’ were told to repay at least A$178m ($136m) to more than 200,000 customers after charging them for financial advice they did not receive, with CBA being the worst offender.
The banks’ dubious practices in the finance and advice industry have repeatedly come under the spotlight of late amid scandals involving everything from misleading financial advice and insurance fraud to interest-rate rigging and failures to pass on rate cuts to mortgage customers.
As a result, the Australian government has set up a parliamentary review, known as a royal commission, to question the chief executives of the ‘Big Four’ on their conduct in the industry.