How to Trade Large Blocks of ETFs Efficiently | Page 2 of 2 | ETF Trends

“When advisors see light volume in the visible market, the environment as they know it is red-flagged to avoid it,” says Erik Ambrose, head of institutional sales at WallachBeth. That fear can cut down an advisor’s ETF options down from more than 800 to 400 or fewer.

Getting the Best Price

The ETF desk at WallachBeth is “100% dedicated to finding the best price that exists in an ETF security in the appropriate quantities, and delivering it in its raw form to the customer,” Ambrose says. “Our sole objective is getting the best price.”

Advisors until recently had very little access to the type of service that WallachBeth offers, which is part of the reason the company started its ETF desk. “It’s a game changer in the marketplace,” Ambrose says. In the ETF world, desks like WallachBeth’s help by making sure the market impact of large orders is kept to a minimum while also ensuring that advisors pay a fair price.

WallachBeth prides itself on its transparent pricing and reporting structure, as well as its deep bench of experienced traders. They have more than 25 traders with an average experience level of about 12 years.

What happens after you buy a thinly traded ETF and you want to sell it? “We always quote a two-way market,” says Andrew McOrmond, WallachBeth’s managing director. “We’re not taking the other side of the trade ourselves, so we have nothing to gain or lose by which direction the RIA chooses to go with an investment.”

Buyers, Sellers and Pricing

Paul Weisbruch, vice president of ETF and index sales at StreetOne Financial, agrees. “We’re agnostic as to whether we’re the buyer or the seller. I make it a point to tell people that the pricing of the ETF is not a function of whether there is a buyer or seller around in the ETF at that point in time, but rather a function of the dynamic liquidity of the underlying market.”

StreetOne Financial is another alternate liquidity provider that not only helps advisors get their trades executed efficiently, but they go the extra mile to work with RIAs and portfolio managers to assist them in finding the ETF that gives the exposure they’re seeking, as well as provide daily technical market commentary and actionable ETF trade ideas. [The point of diversification.]

Weisbruch says the firm’s goal is to be aligned with product issuers while making it feasible for everyone to use all the ETFs out there without losing basis points due to poor trade execution when buying or selling a position.

The point at which an alternate liquidity provider becomes involved is up to the advisor. RIAs and institutional clients can contact an ETF provider, who will guide them through the process, or the liquidity provider can be called directly. The liquidity provider will handle the trade from there, all the way down to delivering an ETF with average pricing. Alternately, the advisor’s custodian can call the liquidity provider and get the trade done that way. At the end of the day, Weisbruch says, “It shouldn’t cause you any more work operationally to get the trade done, and the benefits are better pricing and the recapture of basis points that otherwise would be lost in the marketplace.”

For more educational stories about ETFs, visit our ETF 101 category.