Financial Advisors Are Increasing Allocations to ETFs for Market Exposure | ETF Trends

Financial advisors have increasingly shifted over to ETFs as a way to diversify their investment portfolios while cutting down exposure to traditional actively managed mutual funds.

According to a new survey of financial advisors conducted by Broadridge Financial Solutions, financial advisors will be accelerating their asset allocations to ETFs in 2020.

“Financial advisors overwhelmingly plan to shift away from actively managed funds in 2020 with ETF demand predicted to increase,” according to Broadridge.

ETF usage has continuously increased, with 83% of advisors surveyed raising allocations to ETFs over the past two years.

“As asset managers continue to engage with the next generation of financial advisors, it is critical for them to consider the wind change occurring in product flows,” Matthew Schiffman, Principal at Broadridge Financial Solutions, said in a note. “Advisors planning to allocate more assets to ETFs next year are most likely to pull away assets from actively managed funds, and it’s a shift that’s likely to become more pronounced over time as lower fee ETFs continue to draw investors away from higher cost investments.”

The survey found that 64% of advisors under the age of 40 plan to make the shift toward ETFs. The results also show that younger advisors are more likely to invest in ETFs, with the likelihood of an advisor moving away from actively managed funds to ETFs rising as an advisor’s age decreases.

About 73% of survey participants revealed they expect allocation to ETFs will continue to increase in 2020, with 55% of advisors who plan to allocate more assets to ETFs also planning to shift assets away from actively managed equity mutual funds.

Meanwhile, about 48% of larger advisors with assets of over $500 million will use ETFs primarily for core positions, and 52% of RIAs exhibited a greater penchant to use ETFs for core portfolio positions.

“While assets have shifted into ETFs across the investment landscape, adoption by advisors is not equal across channels, nor is the way advisors research and make decisions for clients,” Schiffman added. “This has important implications for asset managers in terms of product development, distribution, marketing and overall advisor engagement. No one-size-fits-all approach exists, but there are clear opportunities for managers to establish mindshare around new products, including non-transparent active ETFs and thematic ETFs.”

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