The trend toward asset-based fees among financial advisors is propelling the continued rise of exchange traded funds, according a recent study.
“Advisors continue to rely upon a wide variety of investment products to help them service their clients’ investment needs,” Cogent Research says.
“But of all the products advisors include in their bag of tricks, the increase in exchange traded funds is the most significant,” the firm said in a white paper. “While uncertainty about the future of mutual funds may challenge the predictive abilities of industry pundits, there is little doubt that ETFs are here to stay and will become a progressively important part of the product landscape.”
ETFs experienced a 10% increase in advisor penetration over the past year alone, from 60% to 66%, and more than a 40% increase from 2007, where ETFs were used by only 46% of advisors, Cogent added.
ETFs are baskets of securities listed on exchanges that trade like individual stocks.
The higher adoption of ETFs among wirehouses and registered investment advisors is “likely due to an increased reliance on asset-based fees in these channels,” Cogent said.
“Looking forward, advisors expect the proportion of assets allocated to ETFs to grow,” according to the report. “While mutual funds are expected to garner the greatest share of new assets, ETFs are closing the gap. By 2013, advisors expect one in four (24%) new dollars will be allocated to mutual funds, while one in five dollars (20%) will go to ETFs.”