Mr Huver also acknowledges that the Retail Distribution Review (RDR) has had a role in “focusing the mind on cost”.
Mr Li agrees it is investors who are the ultimate beneficiaries. He says: “The first way that investors are benefiting from this is that they can access these simple passive exposures at a low cost and that helps keep their portfolio costs down.
“The second part that benefits investors as part of these price pressures is that it forces the ETF industry to innovate to ensure any product they bring in in the future continues to add value.
“That actually means it will make it easier for investors to find products that suit them for their asset allocation.”
While the IMA is not able to capture the full ETF market in its data, in its latest annual report the organisation noted there is a greater use of passive management strategies in the UK and that this is putting increasing pressure on active managers. Certainly Mr Huver believes the industry’s slashing of costs will put pressure on the active space.
He explains: “We think that over the past five years, and even more recently this year, when you look at flows into passive products, it’s been very strong when compared to active products.
“So we may even be seeing a movement away from active over certain periods or even increasing popularity in passive products.
“That will ultimately force active managers to look at their range and also look at the costs associated with the range, because passive products do tend to be much less expensive.”
Ellie Duncan is deputy features editor at Investment Adviser
Expert view
Simon Klein, head of exchange-traded product sales, EMEA and Asia at Deutsche Asset & Wealth Management
There used to be an assumption that unlisted index funds and passive mandates in general charged lower fees than ETFs, but that is no longer the case. ETFs are now at least as competitive, if not more competitive, than index funds and mandates.
It is important for investors to get a sense of the total cost of ownership, and not just look at the all-in fee or total expense ratio.
ETF PROVIDER PROFILES: THE ONLY WAY IS DOWN
Vanguard Asset Management
Passive provider Vanguard announced lower charges on 25 funds in August this year. The ongoing charges for its ETFs range from 0.07 per cent to 0.29 per cent. Its S&P 500 Ucits ETF now has a charge of 0.07 per cent, down from 0.09 per cent.
iShares
In June this year iShares, the ETF business of BlackRock, cut the cost of a range of its ETFs, including several of its major equity ETFs. The iShares Core FTSE 100 Ucits ETF had its total expense ratio reduced from 15 basis points to 10 basis points. ETFs covering the US, Japan, Asia and Europe also saw fee reductions.
