Broadridge survey reveals advisers plan to move away from mutual funds to ETFs


A new survey from Broadridge of over 500 financial advisers has revealed that ETF demand is predicted to continue increasing in 2020 and that advisers overwhelmingly plan to shift away from actively managed mutual funds.

Eighty-three per cent of advisers surveyed increased their asset allocations to ETFs over the past two years, and 73 per cent say they anticipate that their allocation to ETFs will continue to increase in 2020.

Among advisers planning to allocate more assets to ETFs, 55 per cent plan to primarily shift assets away from actively managed equity mutual funds. Fifteen per cent plan to primarily shift assets away from individual stocks, followed by passive equity index mutual funds (14 per cent), cash and equivalents (9 per cent) and bonds or fixed income mutual funds (5 per cent).

The likelihood of an adviser shifting from actively managed funds to ETFs increases among younger financial advisers, with 64 per cent of advisers under the age of 40 planning to make this shift.

“As asset managers continue to engage with the next generation of financial advisers, it is critical for them to consider the wind change occurring in product flows,” says Matthew Schiffman, Principal at Broadridge Financial Solutions. “Advisers 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.” 

Thirty-six percent of advisers use ETFs primarily for core positions, although usage varies by AUM and channel. Broken down by adviser channel, RIAs are the most likely to use ETFs for core portfolio positions (52 per cent), followed by wirehouse advisers (36 per cent) and IBD/regional advisers (31 per cent). Meanwhile, nearly half (48 per cent) of larger advisers (AUM of USD500 million+) use ETFs primarily for core positions.

Heavy ETF users (defined as having over 40 per cent of AUM in ETFs) are more likely to be found within the RIA channel (44 per cent) compared to IBD/regional and wirehouse channels, at 23 per cent and 14 per cent respectively.

Wholesalers and websites are the primary resources advisers use from ETF providers, but usage differs by channel. When researching new products, RIAs were found to be more receptive to digital marketing channels (eg, webinars), while wirehouse and IBD/regional advisers prefer to leverage wholesalers for product information and selection. Across channels, only 16 per cent of advisers rate existing ETF information and analytical tools, from all sources, as ‘excellent’.

“While assets have shifted into ETFs across the investment landscape, adoption by advisers is not equal across channels, nor is the way advisers research and make decisions for clients,” says Schiffman. “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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