2016 Survey reveals steady growth over the past 10 years
DENVER – Thanks in part to lower costs and tax efficiency, Exchange-Traded Funds (ETFs) continue to supplant mutual funds in popularity among financial advisers, according to a recent survey conducted by the Journal of Financial Planning and the FPA Research and Practice InstituteTM, a program of the Financial Planning Association® (FPA®).
The 2016 Trends in Investing Survey marks the second consecutive year since the survey was first completed in 2006 that ETFs are the preferred investment vehicle among advisers, with 83 percent of financial advisers surveyed currently using or recommending ETFs with their clients—the most popular investment vehicle among 18 options.
The survey has shown continued growth in the popularity of ETFs since 2006, when just 40 percent of survey participants indicated they used or recommended ETFs. This percentage grew to 44 percent in 2008, to 79 percent in 2014, to 81 percent in 2015, and now 83 percent in 2016.
Growth prospects highest for EFTs
The 2016 survey, which was fielded online in April and received 283 responses by financial advisers of various backgrounds, also indicated that 46 percent of advisers plan to increase their use or recommendation of ETFs with clients over the next 12 months. No other investment vehicle showed this level of anticipated increased usage.
For example, 23 percent plan to increase their use of individual stocks and 21 percent of respondents plan to increase their use of mutual fund wrap programs.
Among the reasons why financial advisers are showing more favoritism toward ETFs, lower costs (75%), tax efficiency (56%), trading flexibility (51%), and transparency of holdings (22%) were the primary reasons.
“The vast majority of ETFs are based on indexes, including those that focus on ‘smart beta,’ and I think the growth in popularity is to a significant degree reflective of the ongoing shift among financial planners toward more ‘passive’ approaches to investing client assets,” says Dr. Dave Yeske, DBA, CFP®, Practitioner Editor of the Journal of Financial Planning. “Even planners who still use ‘active’ investment strategies will often start with a core portfolio built around index funds, increasingly in the form of ETFs.“
Although the concept of “smart beta” continues to get media attention, and fund providers continue to release new ETFs products in this category, survey results indicate that only 24 percent of advisers have used smart beta ETFs with clients in the last 12 months. This is a slight increase from the 22 percent reported in the 2015 survey.
Other key survey findings:
- Advisers’ long-term economic outlook is much more positive than their short-term outlook. The majority (64%) of advisers are “bullish” for the next five years, compared to just 26 percent “bullish” over the next six months.
- Although the percentage of advisers favoring active management remained unchanged from 2015 (15%) and was slightly lower than that reported in 2014 (18%), a larger majority of advisers (64%) now indicate a preference for a blend of active and passive management compared to what was reported in 2014 (57%).
- The 2016 survey shows that advisers are increasingly re-evaluating the asset allocation strategy they typically recommend/implement due to changes in the administrative aspects of investments, such as cost and lead manager (30 percent, compared to 22 percent in 2015). Meanwhile, advisers seem less concerned with inflation and changes to investment tax legislation today than in 2015.
Of those surveyed, 98 percent are Certified Financial Planner™ (CFP®) professionals and 49 percent indicated that they work as an independent IAR/RIA. A full report of the 2016 Trends in Investing Survey is now available HERE and includes additional details and narratives.
About the Financial Planning Association
The Financial Planning Association® (FPA®) is the principal professional organization for CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals, educators, financial services professionals and students who seek advancement in a growing, dynamic profession. Through a collaborative effort to provide more than 24,000 members with One ConnectionTM to tools and resources for professional development, business success, advocacy and community, FPA is the indispensable force in the advancement of today’s CFP® professional. Learn more about FPA at OneFPA.org and follow on Twitter at twitter.com/fpassociation.
About the FPA Research and Practice InstituteTM
The FPA Research and Practice InstituteTM is the CFP® professional’s One ConnectionTM to practice and business management insights that help financial planners achieve business success. A program of the Financial Planning Association® (FPA®), the Institute conducts original research on business-centric topics and issues, including operations, personnel, human resources, marketing and technology. Detailed analyses, reports, whitepapers and resources, based on the research, are made available to financial planning professionals to help them identify their business gaps and address them. Learn more here.
About the Journal of Financial Planning
First published in 1979, the mission of the Journal of Financial Planning is to expand the body of knowledge of the financial planning profession. With monthly feature articles, interviews, columns, and peer-reviewed technical contributions, the Journal’s content is dynamic, innovative, thought-provoking, and directly beneficial to financial planners in their work.