Category Investments

LISP platform snag no reason to turn away ETF business – Deutsche

10 July 2014 Wehmeyer Ferreira, db X-trackers

No financial service professional likes to turn away business, though opportunities are apparently being missed in the exchange traded fund (ETF) space because of technical constraints on some LISP platforms.

Most established LISP platforms were designed with strong focus on capital allocations into unit trusts.

In a Unit Trust transaction the cash sum determines the number of units to be purchased and fractions of a unit can be added until the total amount is accounted for. So, R10 000 will buy X-amount of units and fractions thereof, with no cash left over.

However, in the ETF industry, investors can only deal in complete units. They can’t buy fractions of an ETF, says Wehmeyer Ferreira, head of db X-trackers in South Africa, a leading range of JSE-listed ETFs that mirror the performance of major offshore markets.

These technical limitations do not affect all LISP and Platforms. These systems enable a purchaser to invest up to the nearest whole unit while remaining cash is held in an interest-bearing account.

A month later, when the next purchase order comes in, the new money and cash held over from the previous transaction are pooled and further investment up to the nearest whole unit goes ahead and so on.

“Unfortunately, this type of flexible accommodation of ETF purchases is not designed into the functionality of some long-established LISP platforms,” says Ferreira.

“Financial advisers that work predominantly across one of the platforms without the functionality may therefore assume that ETFs cannot be integrated into a Unit Trust solution. This is not the case and independent financial advisers should not think they have to forego these business opportunities.

“An increasing number of clients are becoming aware of the advantages of ETF investing. Allocations into ETFs are growing and we expect the trend to continue. It would be a pity if advisers missed the opportunity to assist their clients because of technical constraints that apply to some – but certainly not all – LISP platforms.”

Ferreira says ETF options are already available across some South African LISP platforms. Alternatively, a financial adviser can go directly to an ETF management company and make arrangements for the purchase of whole units, supported by a cash account to accommodate remaining cash which will then be ear-marked for subsequent ETF purchases.

“In future,” says Ferreira, “we believe ETF availability will be built into all LISP platforms. For the present, however, we have to deal with functionality constraints on some older systems.

“Advisers keen to respond to growing ETF demand will find that these limitations can be easily bypassed.”


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