Advisors Contribute to ETF Industry Growth

Financial advisors are contributing to the growth taking place within the $1.3 trillion exchange traded fund industry. Recent research by Cerulli Associates showed that advisors allocate about 37.4% of clients’s portfolios to mutual funds.

“Almost two-thirds of wirehouse advisors report using ETFs, the highest percentage out of all the channels,” says Alec Papazian, associate director in Cerulli’s asset management practice. “More than half of registered investment advisors (RIAs) are using ETFs, and fewer than 50% of advisors in the remaining channels use ETFs.” [Index ETFs Vs. Active Mutual Funds]

The research indicated that the main attraction to ETFs for advisors is to use them as tactical enhancement to client’s portfolios. Mutual funds are still the predominant choice for core holdings, or the “anchor” investments. There is about $63 billion in ETF assets that were held in managed portfolios last year, according to Morningstar data. [ETF Managed Portfolios Continue Growth Pattern]

Hal M. Bundrick for The Street reports that the biggest reason more advisors do not adopt ETFs into their strategies is active management. The active management aspect allows them to customize strategies. Another reason mutual funds have remained the top choice for advisors may have more to do with the comfort of what’s familiar. “If it aint broke, don’t fix it” mentality is also a likely culprit.

ETF usage by financial advisors has grown, as assets under management expanded 27% in 2012. Another fact that supports ETF industry growth is that ETF fund inflows have outpaced index mutual funds every year since 2003, reports Bundrick. [Index Funds and ETFs Outperform Active Managers: Malkiel]

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.