In 2016, over $610 billion, or 85% of the $724 billion of net new asset flows through third-party channels, went into index funds or passive ETFs, according to Broadridge Financial Solutions.
Independent broker-dealers, wirehouse firms, RIAS and discount brokerage firms experienced almost 82% of net new asset flows into passive funds and ETFs while institutional banks, private banks and trust departments had 90% of net new flows into passive products.
Driving the increased inflows into passive index-based products, expense ratios or management fees have been steadily driven lower, especially as ETF providers engage in a so-called fee war that has helped push annual expenses every closer to 0% while some have even partnered with brokerage platforms to offer commission-free trades to help drive investment interest.
“The move to lower fee products by fee based advisors and banks continues to drive the growth of passive products, with index funds representing 28 percent of net new flows and passive ETFs 57 percent of new flows,” Frank Polefrone, senior vice president of Broadridge’s data and analytics business, said in a note. “This shift is impacting both distributors and fund manufacturers, resulting in changes to distributor’s product menus, development of new ‘clean share classes’ by active fund managers, and a broader use of ETFs for advisor managed portfolios.”
Consequently, third-party channels now have a greater percentage of passive products than passive products across all funds, holding 36.3% of assets in passive products, compared to 32.6% a year ago and overall fund assets that shows 30% in passive products. Broadridge contends that the increased demand for passive products is driven largely by advisor adoption of ETFs as a primary vehicle for client portfolios and ETF usage for robo-advisors.
For more information on the ETF industry, visit our ETF performance reports category.