Buying a fund or buying and exchange-traded fund (ETF) has never been so easy but at the same time, because of regulation, it has never been tougher to distribute a fund or and ETF, said Jaime Perez Maura, global head of business development & sales planning, Allfunds Bank, speaking at the Navigating the index and ETF revolutions panel discussion during the L'Agefi Day: Indexing, ETF & Smart Beta Summit in London on June 8.

"Regulation is killing us," said Perez Maura. It is often said that passive management is better but actually the key is on the asset allocation side, and, according to Perez Maura, if the final outcome for the client is cheaper but not better the regulator will want to know the real outcome for the client and the real result of the advice.

"We are not looking for a cheaper experience but for a better experience," said Perez Maura.  "This is what is really important".

Richard Flax, chief information officer at UK robo adviser Moneyfarm agreed that having a low cost option has value but only matters if that low cost ultimately is reflected in the total return seen by the client. "Over time people clearly look at the net return that we generate," said Flax. "We pay a very significant amount to the fund manager for distribution but we won't be successful if we can't reflect that cost advantage or cost gap in the final outcome."

There is a lot of regulation coming fast and furious, said Eric Pinn (pictured), managing director and head of UK distribution, Barclays Wealth and Investment Management. "We can talk about passive and active but we have the perfect storm," said Pinn. "Low interest rates, quantitative easing, low volatility, low interest count dispersion, and, at the same time, as the result of the financial crisis, we have more regulation, some of it a bit kneejerk, other necessary and probably making a lot of sense."

The regulators are saying there is this big void in the market telling the industry to commit and provide advice, according to Pinn. "But at what cost?" asked Pinn. "Is regulation killing us? Not quite but it is a big headwind. The regulator wants to increase transparency with the focus on costs. There is this whole momentum and mentality pushing and pushing towards the lowest costs but lowest cost can actually mean not a great product."

Pinn once created a smart beta ETF based upon a sector rotation strategy which looked at the 10 sectors in the S&P 500. "I cannot tell you the amount of conversations I have had just about fees and why the ETF was not as cheap as the S&P, yet that ETF outperformed 342 funds in Europe in every time period but still the focus was on fees," said Pinn noting that the fee is actually part of the performance. "Fees are driving everybody into market cap weighted ETFs which basically is momentum and growth," said Pinn. "Smart beta is something you want in moderation, you want it in the mix but if you load up on it then it is a bad thing," he said.

"When a client invests with us, if you are trying to take a long term view, you could argue that performance is the last thing they are going to see," said Flax. "They are going to see an on-boarding experience, they are going to see customer service, they are going to see costs, a whole variety of things, and five years down the line they are going to see the outcome in terms of the performance."

Flax admitted having some sympathy with the idea that robo advisers are going to disrupt because "we want to build a better asset allocation strategy than the thousands upon thousands of strategies already out there". "You would be right to view that with a certain level of scepticism," he said. "Do all of the players that we come across in the industry have what we can call robust investment processes? Yes, we think they do. We think we do. They are of a similar quality from what you would find in an institutional process and the difference there is that it has been provided directly to retail investors maybe in a way we have not seen before."

The difference between Europe and the United States is that when you create an ETF in Europe you have to choose if you want to list on 28 different exchanges, according to Pinn. "Europe is not a country but the US is," said Pinn. "When you buy an ETF you are making an investment decision. The onus is on you. If the ETF does not perform than it is your fault but you cannot fire yourself." Pinn noted that many asset allocators don't know what factor exposure is. "They don't really know what they have in their portfolio so when it comes to adding something that may be new they are fearful that they don't know what the implications are going to be. "

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