How fintech will disrupt the ETF market

By Daniel Lanyon on 15th September 2017

Robo-AdviceChallenger Banks

Change is coming for the passive industry, a new survey has found.

How fintech will disrupt the ETF market

Change is coming for the passive industry, a new survey has found.


Firms offering exchange traded funds [ETFs] need to rapidly evolve to counter a growing threat from fintech, according to a new report from PwC, which also found significant scope for opportunities for incumbents too.

The report, based on a survey of 60 global ETF providers accounting for 80 per cent of global ETF AUM and entitled ‘Live Digital or Die’, explores fintech’s expected disruption of the ETF market.

“We expect that continued advances in digital technologies will significantly impact ETF sponsors, service providers and other participants,” the report stated.

It found a coming “onslaught of automation” will be a key factor behind this change while 4 in 10 respondents expect robo-advisors to generate $50B – over $100B in new ETF flows in the next 5 years (exceeding the AUM of ETF providers Wisdom Tree, Guggenheim and VanEck).

PwC believes these numbers are too conservative and can envision flows of $811bn. More than 1/3 of respondents expect investment advisor operations to be the most disrupted, followed by brokerage services (29 per cent).

Pressure on margins was rated as the top threat of fintech to ETFs followed by increased regulatory risk which cost reduction emerged as the leading opportunity followed by differentiation.

While change is accelerating the report concludes by saying ETF market participants must expect hyper competition driven by advances in digital technologies.

“The ETF market is a hard market to be in but a harder market to be out of, given the level of growth to date and continued growth this product is expected to see. Our view is that organisations in the asset management industry need an ETF strategy, and all organisations in the ETF industry need a digital technology strategy,” it said.

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