collage of clocks, magnifying glass and money (Photo: Shutterstock)

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As commissions hit zero for exchange-traded funds, advisors are using ETFsmore for investors and making other changes in their practices. Sosays the latest report from Cerulli, The Cerulli Edge—U.S. Advisor Edition, whichalso says that as several of the largest RIA custodians adopted zero-fee trading, it's"quickly become the norm—impacting both direct investors andfinancial advisors who are increasingly using the vehicle as abuilding block for client portfolios."

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While advisors mostly stayed away from ETFs in 2019 because ofclient concerns over cost, the move to zero-commission trades latein the year has cleared the way for "substantial room for growth inthe ETF space among financial advisors," according to analystMatthew Belnap. He is cited saying in the report that "the race tozero will likely serve as the catalyst for increased adoption."

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Not only is there room for growth, among advisors who also dotax planning, those zero-commission ETFs provide the opportunity tominimize tax obligations. And that's not all; Belnap continues,"Transaction costs in the past may have prevented advisors fromtaking advantage of tax loss harvesting or strategic rebalancingopportunities. Zero-fee trades allow advisors to be more flexibleand strategic in pursuing client objectives."

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The report adds that Cerulli expects advisors to allocate moreto ETFs for exposure to niche asset classes because the flexibilityand liquidity they provide, combined with no transaction fees,makes them even more attractive.

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But of course while the lingering presence of fees can drivefee-aware investors to (or away from) advisors, the latter willhave to prove their worth in other ways, as Morningstar points out. It says that advisorswill have to "effectively communicate" their value to clients toensure those clients know they're on the same page with regard togoals.

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Morningstar suggests that advisors have a conversation withclients about how important goals-based planning is, and point outthat such a strategy can boost a client's wealth by more than 15 percent. They should also discussbehavioral coaching with clients, but only after emphasizing howsuch a technique can be beneficial to the client—and last but notleast, they should deemphasize maximizing returns as an investor'sgoal by highlighting the importance of not taking on risk.

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According to Morningstar, "[f]inancial advisor value iscurrently misunderstood. The role of an advisor is no longer justto be an investment expert; it's also to serve as a behavioralcoach, financial counselor, budgeting master, and more." If clientsdon't understand this, even zero-fee ETFs won't keep them forlong.

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.