Everything’s more expensive these days and we’re all sick of being nickeled and dimed to death with random, surprise fees. This frustration has led to the success of exchange traded funds (ETFs), and they’ve changed the way advisors do business.
A study conducted in March by State Street Global Advisors confirmed that advisors love the low-cost, fee transparency and tax efficiencies that ETFs offer. This has led to 76% of the 840 investment professionals surveyed saying they believe the funds fit well in fee-based accounts.
I spoke with Mariana Lehmann for Ignites earlier this week about the issue. I’ve been a fan and proponent for ETFs for years now, and it’s exciting to see them taking off the way they have. They simply offer too much for investors to ignore them.
ETFs are slowly moving into the mainstream. Matt Hougan for Index Universe says that at conferences a mere five years ago, you’d ask who uses ETFs and one or two hands would go up. Today, it’s pretty much the entire room.
That being said, SSgA and other providers still believe there are some obstacles in the way. Even experienced advisors might find them confusing because of the wide array of choices now available. There are nearly 700 ETFs on the market now, and more are launched weekly.
While that may be true, the world of mutual funds is infinitely bigger. On top of that, ETFs are much easier to understand and use, thanks to the transparency they offer. Mutual funds simply don’t have that. So while there may be close to 700 funds, it’s easier than ever for investors to do the research necessary to make wise and informed choices.
Of the advisors who took part in the survey, 43% said they felt the greatest potential growth area for ETFs is in 401(k) plans, which right now is largely the domain of mutual funds. Congress is currently looking closely at fee disclosure and retirement plans, something that will make the argument for ETFs in those plans even stronger.
Eventually, trustees of 401(k) plans will feel the heat and begin incorporating them, and it will be a great day for investors.