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All types of managed money solutions used by fee-based advisors are expected to grow over the next two years, but the use of ETF-managed accounts will far outpace adoption of other solutions, according to a survey of US advisors by Market Strategies International, a US-based market research consultancy.
In fact, on a net basis the proportion of fee-based advisors expecting to increase their use of ETF advisory/wrap accounts (23%) is three times the proportion who expect to increase their use of mutual fund advisory/wrap accounts (7%).
Remarkably, three quarters (76%) of fee-based advisors now use some type of managed account solution within their practice, accounting for 61% of their total assets under management, on average.
Mutual fund wrap programs and Rep as Advisor models are currently the most commonly utilized advisory platforms. However, over the next two years, growth for each platform will be stymied by significant proportions of advisors who plan to pull back from using these solutions.
By contrast, one in four (24%) fee-based advisors plans to expand their use of ETF wrap accounts, while virtually none (1%) say they plan to decrease use.
Meredith Lloyd Rice, senior product director at Market Strategies International and author of the study, said: “From a practical standpoint, the use of ETF wrap accounts is still relatively new, but considering the tremendous demand for ETF products there is certainly room for growth.”
She added: “The proliferation of ETF products and investment strategies make building a managed solution around these products quite attractive to advisors, especially as they become more comfortable with ETFs in general. However, in today’s fee conscious environment, advisors and providers alike will have to monitor the ‘all-in’ ETF wrap account cost given a penchant for lower expenses among advisors and investors.”
The survey was based on online responses from 1,694 fee-based advisors in March and April of this year. Survey participants were required to have an active book of business of at least $5 million, and offer investment advice or planning services to individual investors on a fee or transactional basis.