RIAs drive active ETF adoption
Exchange-traded funds (ETFs) are increasingly becoming the dominant investment structure, as passive ETFs account for the largest portion of monthly flows among registered investment vehicles. Tax efficiency and lower fees have raised their profile among intermediary advisors trying to deliver the most value to clients and direct retail investors prioritizing cost. Registered investment advisors (RIAs) have led the charge for intermediary ETF adoption. They not only prefer the vehicle by a wide margin compared to other channels, but this has directly translated to assets, with RIAs becoming the lead source of active ETF adoption.
ETFs lead across channels
ISS MI’s Advisor Pulse series has captured a strong and growing preference among advisors for ETFs. The September 2024 edition on vehicle preferences and portfolio construction asked advisors which vehicle they would choose if the same strategy (from one of their preferred asset managers) were available as an open-end mutual fund, separately managed account (SMA), or ETF. Advisors strongly preferred ETFs, with 60% of advisors choosing the vehicle. When asked about their chief reasons for employing passive ETFs, low fees led strongly; 85% of advisors listed cost as one of their top three reasons, followed by 60% who specified tax efficiency. Both elements help advisors deliver value to clients without having to cut their fees.
By: Alan Hess, Vice President, U.S. Fund Research, ISS Market Intelligence
