What does it take to get the sales message out to advisers? Persistence, persistence and more persistence. Neil Martin Talks to Dominic Clabby, Director at ETP provider Source
You might suppose that Dominic Clabby, Source’s main man for the coverage of platforms, intermediaries and independent financial advisers right across the whole of the UK and Ireland, would rarely get the chance to leave his London office. But you’d be wrong. Here’s a senior executive who loves to be on the road, meeting IFAs and getting feedback on his company’s products.
He attends road shows, visits individual firms and is happy to fly the flag. The theme is always the same however- focus on the end result, and not on the mechanism of the investment product itself. For Clabby, and for Source, it’s the destination that’s important, not the journey.
And as we’ll see shortly, there’s an important job to be done. IFAs are in need of some reassurance when it comes to ETFs. And Clabby for his part, says that at the heart of his mission is a straightforward pitch: don’t be afraid of ETFs.
The Price Factor
But yes, there was a special reason why he was keen to talk to IFA Magazine. A day earlier, Source had announced that it had cut the management fee on its flagship S&P 500 UCITS ETF to just 0.05%. Source claims that this is now one of the most aggressively priced ETFs delivering S&P 500 exposure.
“Now, the S&P500 is one of the most followed equity indexes and is recognised as offering the most stable exposure to a broad range of large US stocks. The big plus about the S&P500 is that it is very liquid.”
“We now have over US$19 billion invested in our ETF range, with US$1 billion in our S&P500 ETF alone. This scale helps us to make sure the pricing is more competitive for investors.”
“People talk about headline management fees,” he continues, “but what’s really important is the total cost of ownership. Plus, of course, how much does the fund differ from the index at the end of the year?”
The Passive Space
“Cost has been under the spotlight ever since RDR started rumbling,” Clabby says. “When it comes to certain portfolios, the efficiency of certain markets, it does make much more of a compelling argument to go into the passive space.”
“I think the question mark over ETF, or index funds, then creeps in – because with a lot of the index funds, of the broad market kind, what they can’t do is offer some of the more unusual and diverse markets.
To be truthful, there are other funds that have also been shadowing the S&P 500 index very well, but the fee cut means that performance has effectively been increased. “We haven’t done anything fancy in the background.”
“It’s more a case of if you’re going to do it, then do it the most efficient way.”
An ETF By Any Other Name….
Clabby explains a bit more about how he sees an ETF. “It’s up to the IFA, but what I’d really like to try to get away from, certainly within the general consensus, is talking about ETFs as an entity. ETFs aren’t an entity. It’s like saying do you buy oeics? It’s a sentence that doesn’t make any sense until you put in a context about what that investment is actually doing.
“If you just said this investment tracks the S&P500, people would ask: ‘Is it an ETF? What kind of structure is it?’ Well, that becomes a little less relevant, certainly from the IFA’s perspective, when what they want is to buy and hold for potentially longer periods of time – and where intraday trading isn’t necessarily high up on their priority list. Being able to buy a fund efficiently and in a cheap way, those are the kind of tick-the-box type questions that they have.”
He laughs. “Amazingly, if you offered S&P500 exposure as an oeic, and if it did exactly what the ETF did, few people would think twice about using this. Sometimes you get stuck on the word ETF, and you lose sight of what it’s trying to do.”
….Would Smell Good Too
Clabby believes that the problem with the perception of ETFs is that many advisers focus on too much granular detail, and that the central benefits are being missed: “It’s a fluid conversation to be had with firms to say look, in the case of some of our fixed income products, yes it is a high yield, yes it will have the associated higher risks you would expect with the asset class, but it’s exposure that is difficult to get outside this kind of structure.”
“So with that in mind, I think some firms on the learning curve try and get their heads around not only how ETFs work and operate, but also maybe some of the considerations around physical or synthetic. But they shouldn’t get bogged down in the detail of how the fund is actually structured as opposed to what it is trying to achieve.”
What Advisers Still Want to Know
I ask Clabby whether they have progressed in terms of their general product knowledge with such vehicles as ETFs. He responds with an example of one small outfit, a one-man band that he visited recently.
“He started to review ETFs only about six months ago, and since then we’ve had a couple of conversations on the phone. I went over to see him, he’s not a million miles away from where I live, so it was quite easy for me to pop in. It’s always nice to step out of London and understand how the regional firms work, their needs and wants, instead of sitting in the office and trying to understand their business from afar.. And he’s now bought a variety of Source ETFs across the asset spectrum.”
“This adviser understands that this is an investment option in the first place, rather than an ETF primarily. So he was comfortable with the structure. Obviously, he has to do what the FCA requires him to do, but at the same time the appetite to look outside of the main stream for certain clients is very much there.“
“And this is just one man, who fortunately I was able to spend some time with. Obviously I won’t be able to do that for every IFA in the country – I’d love to – but this is a prime example of a firm which has never touched an ETF before and found that they were a great option for their clients.”
Time on the Links
Clabby’s career has been very much a progression through the ranks – most recently including positions at AXA and Fidelity FundsNetwork. He originally started out as part of the correspondence team within the Fidelity offices in Reigate, handling everyday complaints and queries. And this, he said, gave him a unique perspective on the financial service sector, one which is still very useful today: “You start at the bottom and you start to understand how a business operates all the way through.” He joined Source in January this year with a brief to listen to the IFAs and get their feedback.
But here’s a tip. If you want a visit from Clabby, organise a corporate golf day. But be prepared for a decent game.
I ask him if it’s true that he’s earnt the reputation within Source of being a “lethal golfer”? He answers with a laugh and a line that all keen amateur golfers have to trot out when asked such questions.
“I have a younger family,” he laughs. “And I’ve just moved home, so there’s a lot of other things, such as wall paper stripping, and knocking down walls, that are taking up a lot of my time at the weekend. So the golf game might suffer. But if there’s a sunny, or rainy afternoon for that matter, and if I’ve got a spare four to five hours, then you’ll find me on a golf course.”
So what’s his handicap? He’s reluctant to say. It wouldn’t do to have the bosses thinking he spends too long on the course. But, if you’re looking for someone to explain just what an ETF is, and why you should be considering them, then a quick word with Mr Clabby would be a good place to start. And if you have a bag of clubs handy as well, then so much the better.