ETFs have arrived and are here to stay. They can also help you help your clients achieve their investment goals. In a post-RDR world, the 'whole of market' requirement will certainly require that you consider ETFs.
The RDR consultation paper in section 2.9 refers to ETFs: "... to the extent that ETFs can be a cheap and transparent way to invest in a particular market, even under our current whole of market requirements, these products should be considered when deciding which products are suitable for a retail client." (FSA Consultation Paper 09/18- Distribution of retail investments: Delivering the RDR. June 2009, p11)
The FSA appears to have recognised that ETFs can provide a "cheap and transparent way to invest" just like other index funds and that they should be included as part of the "whole of market requirements."

The consultation paper picked up the two key benefits of ETFs for advisers: cost and transparency. They share these benefits with other index funds, such as Oeics.
Ultimately, index ETFs simply offer another way to index, although there are some features of ETFs that you will need to know about before using them for your clients.
What are the key points?

• ETFs have proven to be a popular and flexible way of delivering pooled index funds at an even lower cost
• They offer another way to index and build solid, diversified investment portfolios.
• ETFs are not going anywhere and advisers will need educate themselves to meet the whole of market requirement under RDR
• Costs are key and understanding the full 'round trip' costs, or the cost ofbuying,holding and selling an ETF, along with the breakeven point, are the keys to using ETFs wisely.

Many advisers mistakenly believe that because ETFs trade on the stock exchange that they need discretionary permission from the FSA to give advice on them. Because this would ramp up personal indemnity costs, they feel that this would preclude the use of ETFs on a cost basis.
But it's worth repeating the fact that Ucits ETFs are just another fund that are covered by their normal permissions. They're really just another pooled diversified fund with flexible access.

Vanguard will be at the IFP Conference 2012 at the Celtic Manor Resort fom 1-3 October and look forward to seeing you there. Please come and see us on Stand 46 in the Exhibition Hall.