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April 30, 2015 at 11:41 AM
The great migration continues as ETFs gain an ever-growing share of the investment market. The growth in the ETF sector has been virtually unbroken since the first such product was rolled out in 1993.
As the lower fees (usually calculated in single digit basis points) charged for ETFs have attracted more RIAs to use them as part of client portfolios, advisors have been forced to adjust the way they do business in order to account for the differences between the way mutual funds and ETFs work.
Still there is work to do, says Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital.
“Most people don’t know what an ETF is. Advisors need to educate clients,” he says. “There is some resistance because certain advisors are old school. That’s OK.”
And advisors need to educate themselves and adjust their thinking. Among the key differences RIAs must keep in mind, Bajaj, who was formerly a vice president at Deutsche Bank and Bear Stearns, says, are the frequency of quote changes, fund capitalization, role of the market maker and intraday trading costs.
Bajaj, in an interview with ThinkAdvisor, talked about four things RIAs need to consider when using ETFs as investment vehicles.
Besides those cheaper fees, Bajaj says a key advantage to ETFs is that they include different asset classes and cross international boundaries.
1. Management
