The retail and institutional investment markets in the UK have something in common; in both intermediaries play a key role in the distribution of pensions and investments.

In the retail market, independent financial advisers (IFAs) are the dominant route for financial services companies to distribute products such as pensions and mutual funds.

On the institutional side, investment consultants still act as influential gate-keepers in offering advice and guidance to pension funds.

An illustration of intermediary power in both markets is shown by the relatively low take-up of exchange traded funds (ETFs) in the UK.

ETFs are investment products with a single charge set at 0.2% to 1%, depending on the underlying asset.

ETFs normally track an index, although active ETFs are being developed and are increasingly used to invest in commodities, emerging markets or particular areas of developed markets.

Importantly, ETFs do not pay upfront or trail commissions to advisers.

In the UK retail investment market, ETF providers say the lack of commissions mean that IFAs are not ‘incentivised’ to offer their clients ETFs.

As a result, ETFs sales in the UK lag other markets such as France and Italy, despite the first European ETF being launched in London in 2000.

It is a similar story in the UK institutional market.

Investment consultants are not paid by commission, but charge clients a fee.

However, they are seen by providers as having with a lack of familiarity with the ETF concept.

It should also be said that large pension funds have sufficient buying power to obtain indexation at charges as low, if not lower, than ETFs offer.

However, in both markets ETF providers are beginning to sense that the tide could be turning in their favour.

In the retail market, there is a move against commission payments as a means of adviser remuneration, with the Financial Services Authority’s retail distribution review likely to crack down on commissions.

This would suit ETFs; in the US, their rise over the past few years is in part attributed to a switch to fee-based advice for consumers.

Among institutional investors, use of ETFs is growing.

Their flexibility and increasing diversity lends them to the more advanced investment strategies now used by larger pension funds, for example.

Indeed, it is something of paradox that private wealth managers, hedge funds and other sophisticated users have been among the leading users to date of a relatively simple, clean product suitable for the masses.

The next year could be a very significant one for ETFs.

A change in tax regulations will bring more ETFs from continental Europe to the UK and this competition should benefit consumers in both retail and institutional markets.

This and other changes mean that ETF usage is nearing the tipping point.

As a consequence, the intermediaries, be they consultants or IFAs, may need to keep up with the tide, or find themselves being asked awkward questions about their views on ETFs.

Finally, the question is then, if ETFs can succeed in the retail and institutional UK market despite the obstacles, will they succeed in all developed investment markets?