Derek Fulton, CEO of provider First Trust Global Portfolios, has called for ratings agencies to analyse exchange-traded funds alongside active offerings to give buyers a more transparent picture of the options available to them.
Speaking about the FCA's Asset Management Market Study, which criticised ratings agencies and best buy-lists for not highlighting all funds offering the best value for investors, the CEO said fund ratings should compare ETFs directly to active strategies.
He said: "If you have a smart-beta ETF, the ratings agency would not rate it using the same system, so an adviser would not get a comparative rating.
"If an adviser or DFM searches for the top funds, the list will not include ETFs because they do not rate them like that."
Fulton also called for platforms to make real time ETF trading simpler, saying he has had conversations with many investors who want to be able to invest in ETFs via platforms more easily.
"It is still difficult to use ETFs effectively on platforms," he said. "The Financial Conduct Authority (FCA) is pushing for platforms to have more product access, but it is expensive to fix this."
The CEO added the UK retail market has yet to adjust to the idea ETFs could be used as a wrapper for a variety of different strategies and not just as a passive, market-cap weighted index.
He said the firm does not see itself as a pure passives provider, but rather as fundamental, rules-based stockpicking investors that use ETFs as a wrapper to deliver strategies to clients.
"Having our products as an index means it can be transparent, so we like this methodology. It is clear, instead of having style drift and manager risk," he said.
"Every asset allocation decision is an active decision. The more active investors become with their asset allocation, the more ETFs or indexed products they will want to have available to make those decisions and to differentiate themselves."
Meanwhile, Fulton said an unintended consequence of the increase in regulation was that it benefitted the larger asset managers over smaller ones.
"The regulator is trying to increase competition, but the indirect consequence of more resources being required to meet regulatory compliance means this tends to favour those who are bigger because they can spread the costs," Fulton said.
"What you want is a fair regulatory playing field and then competition on innovation. We want to be very close to our clients and understand what their needs are and how we can be relatively nimble in responding to these."
Approaching $1.5bn capacity limit
Leader of People's Party
Listing two global equities strategies
Aims to encourage competition in industry
Markets went into freefall