As the exchange traded fund industry grows, more financial advisors are beginning to utilize the investment vehicle to gain market exposure.
Reflecting financial advisors’ shift toward low-cost and passive index-based strategies, the number of advisors who reported selling ETFs is at an all time high, according to Cogent Wealth Reports.
Specifically, 76% of advisors are now selling ETFs, a significant jump from 68% of advisors in 2014. Cogent points out that the rising interest was driven by a significant increase in usage among registered investment advisors and bank advisors. ETF adoption remains highest among RIAs and National wirehouse advisors. RIAs, though are the only channel with a higher percentage of advisors selling ETFs at 93%, compared to 86% for mutual funds.
The rising popularity of ETFs coincides with a shift away from commission-based advisory businesses to more fee-based businesses where RIAs would normally charge a percentage fee based on overall assets managed. Consequently, many advisors are turning toward low-cost ETF investments – the average expense ratio for ETFs is 0.53% and the cheapest ETFs come with a 0.04% expense ratio.
Meanwhile, over the past year, average allocations to ETFs also rose to 14% from 11%.