Brokerage firms are putting their arms around exchange traded funds (ETFs) in a big way, even going so far as to build entire portfolios out of them.

Some of the largest brokerage houses, such as Citigroup’s (C) Smith Barney division, Merrill Lynch (MER) and Wachovia (WB), have begun pitching model portfolios made up exclusively of ETFs, reports Ian Salisbury for the Wall Street Journal.

Why the change? After all, many of these firms for years promoted actively managed mutual funds and individual stocks. ETFs entered the picture and changed things up. They became attractive because many are more narrowly focused than conventional mutual funds, allowing investors to focus on a particular sector. There is something for just about everyone.

The wide number of choices available in ETFs also enables advisors to put their own personal stamp on what an investor holds by giving specific, tailored advice about allocation.

Model ETF portfolios are likely to face competition from no-load life-cycle or lifestyle funds, which adjusts one’s asset allocations over time.

Tags: Sector ETFs