Jason Petersen (left), Alastair Davidson and Tom Collinson

Financial advisers have a wide choice of more than 240 ETFs listed on the ASX to provide exposure to a variety of sectors, themes, indices to diversify clients’ investment portfolios.

Sydney-based fee-for-service firm 5 Financial head of advice and certified financial planner Jason Petersen tells Professional Planner the firm has been big users of ETFs since 2009 replacing their previous focus on direct ownership of equities and international equity exposure.

“We have about 320 clients and a big focus on middle Australia, rather than high-net-worth, because the value-add for them is huge and that’s where we get the most satisfaction,’’ Petersen says.

“Our philosophy is to keep costs low for clients and know that there’s nothing synthetic in there.’’

While 80 per cent of ETFs were passive, the firm used active ETFs as satellites of a clients’ portfolio, to give them exposure to needs such ethical investment or cryptocurrencies.

A holistic financial planning business, 5 Financial relied on research from Lonsec and Morningstar to inform their ETF selections, using only ‘recommended plus’ products.

“Consistency is key; we don’t want to be switching clients in and out,’’ he says.

A gap in the market was exposure to private equity investments, which fund managers have been doing, as a “satellite” holding for clients’ portfolios. He hoped that ETF builders would examine a “broad ETF that helps eliminate a portion of that risk” for retail investors.

Larger financial adviser firms also use passive and active ETFs for their clients due to the low cost of entry for exposure to certain sectors in their portfolios.

Canaccord Genuity Group managed accounts director Tom Collinson works in an international multiservice wealth management firm which has its own in-house research ability to select the most appropriate ETFs for clients.

“We take a slightly more institutional approach. We don’t rely on third party research,’’ Collinson says.

“We’ll look at that research from time to time but it’s by no means the most important part of our [selection process].”

Using both active and passive funds in clients’ portfolios, Collinson expected to see more active ETFs as the market continued to grow.

“In terms of our process, we don’t limit ourselves to Vanguard, iShares or Betashares,’’ he said. “We’ll look at anything.”