Mutual funds have long been the investment vehicle of choice for many investors and financial advisors, but changing times may be on the way. A new study suggests mutual funds will experience a sharp decline within advisors’ product selections on behalf of clients.

According to Cogent Research, fewer than two advisors out of 10 anticipate increasing their use of open-end mutual funds in the future. As a result, the firm projects, the mutual fund share of the product pie will drop from 35 percent to 31 percent.

The firm’s study, called the “Advisor Product Forecast,” concludes that the biggest beneficiaries of these trends will be ETFs and separately managed accounts (SMAs).

The study is built upon a detailed channel-by-channel survey of advisors, providing data beginning with where advisors are currently directing assets under management and where they expect to be two years from now, along with a product map showing where they intend to allocate new money.

“Advisors are in a unique position to not only observe and evaluate trends in asset management products and accounts, but also to gauge their clients’ evolving receptivity to traditional versus new investment options,” states Bruce Harrington, managing director, Cogent Research. “As a result, the actions of advisors show a marked, definitive shift in product selection in the coming two years.”

Other findings in the study include:o ETF growth is being driven by specialized use among advisors focused on wealth management.o Closed-end funds will continue to occupy only a small segment of advisor assets under management; however, their niche appeal to advisors and high-net worth investors is expected to be sustained.o Hedge-fund use will remain limited to a small portion of advisor portfolios.o Variable annuities will struggle to increase market share, due to compensation arrangements and negative perceptions.o Fees based on AUM will comprise the majority of income for most advisors — and this will influence their product selection.

The Cogent “Advisor Product Forecast” was based on online surveys of a representative cross section of 1,266 U.S.-based advisors, and was conducted during the fourth quarter of 2007. Survey participants were required to have an active book of business of at least $1 million, and to offer investment advice or planning services to clients on a fee or transactional basis.

Ron DeLegge is the San Diego-based editor of www.etfguide.com.