As billions of dollars continues to flow into exchange-traded products, financial advisors are taking the lead in ETF adoption.
In the 2017 Trends in Investing Survey, published by the Denver-based Financial Planning Association, Longboard Asset Management and the Journal of Financial Planning, almost every advisor respondent reported using or recommending ETFs to their clients.
Among the FPA’s respondents, 88 percent of advisors are either using or recommending ETFs, making them industry’s the most popular investment vehicle among 18 possible choices. This percentage more than doubles the number of ETF adoptees than registered in the survey’s first year, 2006, when 40 percent of advisors were using or recommending the products.
According to the survey, 50 percent of advisors plan to increase their recommendations of ETFs over the next 12 months. By comparison, no other investment vehicle showed similar levels of anticipated increased usage: Just 20 percent of respondents planned to increase their use of mutual funds, while 19 percent planned to increase the use of common stocks.
The widespread use of ETFs doesn’t mean that advisors are whole-heartedly joining the passive investing movement. Most of the FPA’s respondents, 77 percent, said that they used a blend of active and passive strategies.
Along with ETFs, a growing segment of advisors also recommend the use of cash or cash equivalents. For the first time, the survey recorded more advisors recommending allocations to cash, 85 percent, than mutual funds, 80 percent.
Advisors are reporting increased uncertainty around their investment philosophies and the decisions they make on behalf of clients. While most respondents were still cautiously optimistic about their strategies, 27 percent said that diversification has become more difficult today than it was in the past, with 46 percent seeking new ways to diversify portfolios.
Advisors are still reluctant to embrace alternatives for diversification, almost three-fourths of the respondents, 73 percent, said that they allocate no more than 10 percent of their clients’ assets to alternatives.
Among the respondents, 36 percent of the respondents were unsure whether a 60/40 balanced portfolio of stocks and bonds would be able to produce returns in the future comparable to its historical results. Yet most decisions to reallocate client assets are spurred by changes in inflation or taxes, according to the survey.
The 2017 Trends in Investing Survey was fielded online in March and April 2017 among a group of 302 advisors of various backgrounds and business models.