OEICs versus ETFs: why both can co-exist in advised portfolios

ETFs have become one of the investment industry’s biggest growth stories. Low charges, defined index exposure and intraday dealing make them appealing – and increasingly hard for advisers to ignore.

Yet OEICs still do much of the heavy lifting in advised portfolios. That’s not simply habit; they fit neatly with platforms, regular contributions, income payments and long-term planning. So, the real question is not which structure is ‘best’, but which is best suited to the client, the portfolio and the job it needs to do.

ETF growth reflects broader shifts in portfolio construction: greater acceptance of passive investing, a sharper focus on value for money and better platform access to listed funds. ETFs can also work well in core-satellite portfolios, providing low-cost market exposure alongside active funds or specialist strategies.

Their appeal goes beyond the headline charge. ETFs can provide precise exposure to asset classes, regions, sectors or factors, and their exchange-traded structure allows advisers to make changes during the trading day where that flexibility is useful.

More mature ETF markets may also offer a useful guide to what comes next. In the US, ETFs are already a mainstream portfolio tool used by both retail and institutional investors, supported by deep liquidity, broad product choice and established brokerage-based distribution. Adoption is also accelerating elsewhere. Europe, for example, has seen particularly strong growth as digital investment platforms and regular ETF savings plans widen retail access. Globally, ETF assets increased by 33.7% during 2025, with record net inflows of US$2.37 trillion¹.

Although the UK has its own platform, regulatory and client dynamics, experience elsewhere suggests adoption can build quickly once distribution improves, advisers become more familiar with implementation and products fit more easily into regular savings, rebalancing and retirement workflows.

OEICs remain deeply embedded in the UK advised market, particularly across active equity, fixed income, multi-asset and risk-rated ranges. Their once-daily pricing gives clients a straightforward dealing experience without the added complexity of spreads, market depth, or intraday price movements.

They also work well with the practical rhythms of advice: monthly investing, phased implementation, model portfolio rebalancing and retirement income payments. For many clients, administration and ease of understanding can be as important as the lowest headline cost.

• Advantages. OEICs are simple to explain, easy to administer and widely supported across adviser platforms. They offer broad access to active and multi-asset strategies, and their pricing is based on the underlying value of the fund’s assets. This can make them particularly suitable for regular savings, phased drawdown and clients who prefer a straightforward investment journey.
• Considerations. OEICs don’t trade intraday, so advisers can’t control the exact execution price. Some may have higher ongoing charges than equivalent passive ETFs. Liquidity is also worth thinking about, particularly where funds invest in less liquid assets and must manage redemptions fairly.

The real question is not which structure is ‘best’, but which is best suited to the client, the portfolio and the job it needs to do.”

• Advantages. ETFs can be cost-effective, transparent and flexible. They make it easy to build diversified passive exposure, access specific markets, and implement portfolio changes quickly when timing matters.
• Considerations. ETFs come with trading mechanics that need to be understood and explained. Bid-offer spreads and platform dealing charges can reduce the fee advantage, especially for smaller portfolios or regular contributions. Liquidity depends not only on the ETF itself, but also on the underlying assets and market-maker support.

Cost matters, but Consumer Duty requires advisers to assess overall value and client outcomes – not just the ongoing charge. The calculation should include platform fees, dealing charges, spreads, portfolio size, trading frequency, tax wrapper and income needs.

Client understanding matters too. Advisers should be able to explain an ETF’s index, replication method, liquidity, tracking difference and trading costs – or, for an OEIC, its role, charges, liquidity and expected contribution to the portfolio.

The suitability rationale should explain why the chosen vehicle fits the client’s objectives, knowledge and experience, risk profile, investment horizon and likely behaviour.

Where cost drives the decision, the rationale should reflect the full trade-off: whether an ETF’s dealing costs and spreads offset its fee advantage, or whether a higher-cost OEIC offers clear benefits through active management, income features, specialist access or operational simplicity.

• What role does the holding play in the portfolio?
• Is active management important in this area of the market?
• What is the investment strategy and are there any associated tax efficiencies?
• How cost-sensitive is the client?
• How frequently is the portfolio rebalanced?
• What level of flexibility is required?

ETF growth is reshaping portfolio construction, but it doesn’t make OEICs obsolete. ETFs can bring low-cost, transparent and flexible market access. OEICs can bring simplicity, broad fund choice and a familiar client experience.

For advisers, the answer is rarely ‘OEIC or ETF?’ in isolation; the two can be complementary. The better questions are whether the structure supports the client’s objectives, platform arrangements, cost expectations and behaviour over time. The best portfolios are structure-aware, not structure-led.