ETF allocation in fee-based portfolios on the rise

New research from Cerulli suggests that allocations to ETFs in fee-based portfolios have increased dramatically.

The 3Q issue of The Cerulli Edge - Managed Accounts Edition finds that ETF allocations have gone up from 2.8 percent in 2008 to 8.7 percent at the end of the second quarter of 2012. 

"Advisors are allocating more to ETFs than ever before," said Patrick Newcomb, senior analyst at Cerulli. "In a little over 4 years, we've seen a nearly 6 percent growth in ETF allocations, which is a notable jump."

The company's research describes how ETFs are changing the dynamics of the mutual fund advisory and rep-driven programs as well as the underlying investments used in separate accounts.

"There is a significant increase in the use of passive investments, which is helping to fuel the rapid growth of ETFs in managed accounts. The lower fees associated with ETFs compared to mutual funds has been a strong influence in the increased advisor adoption of ETFs," Newcomb adds.

Cerulli's recent research includes analysis of the increasing need for due diligence teams to vet asset managers as more are launching active ETFs. This means that more products are making their way onto broker/dealer platforms, requiring a vetting process that wasn't necessary for passive investment products. 

"Another result of the increase in ETF allocations industrywide can be seen in the increase in the number of ETF strategists employed by broker/dealer firms to assist with implementing tactical investing in their clients' portfolios," Newcomb said. "ETF strategists are growing their assets faster than any other managed accounts segment."

The opportunity for asset managers interested in gaining ETF distribution is to fully understand the advisor segments actively using ETFs and the role ETF strategists play.

ETF strategists will continue to play a crucial role in helping broker/dealer firms educate advisors on implementing tactical strategies into their clients' portfolios, which will help maintain the current level of growth.


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