ETF assets rose 21% for the year' mutual funds grew only 0.5%.

Exchange-traded funds continued their surge in the second quarter of 2015, driven almost exclusively by the retail investment market and fee-based RIAs who can deploy low-cost solutions without affecting their revenues.

ETF assets increased in value by $265 billion over the second quarter in 2014, outpacing the $200 billion in growth in long-term mutual funds, according to Broadridge Financial Solutions, a provider of investor communications, data and technology products for asset managers and public companies.

More than 87% of ETF growth for the year ending at the end of June came from retail channels. More ETF assets — $496 billion — were distributed through RIAs over the year than through any other channel.

Total ETF assets distributed through the wirehouses were $397 billion.

Total assets under management in ETFs saw an increase of 14%, compared to an increase of 6 percent for assets in long-term mutual funds.

The RIA channel was also tops for new assets in long-term mutual funds, as fee-based advisors added $130 billion in new mutual fund assets over the year ending in June.

But while ETF assets in all channels were up 21%, or $70 billion, mutual funds’ growth was a paltry $6 billion, or 0.5%.

In the first quarter of this year, ETF assets sold through retail channels surpassed those of long-term mutual funds for the first time. Total ETF assets stood at about $2.19 trillion at the end of the first quarter.

Increasing scrutiny of fees has made ETFs naturally attractive to advisors and investors, said Frank Polfrone, senior vice president of Access Data, the research arm of Broadridge that tracks 95% of all ETF assets, in an earlier interview with BenefitsPro, ThinkAdvisor’s sister site.

As investors have become more cost conscious, ETF offerings have expanded to include virtually every investment category, said Polfrone.

While the explosion in ETFs has yet to transfer to the defined contribution space, Polfrone thinks wider adoption in 401(k)s is in the offing.

“ETF usage is likely to increase as more record keepers begin to support their use. And we’ve already seen Schwab launch a 401(k) offering built on ETFs,” said Polfrone.

Charles Schwab launched an ETF 401(k) offering at the beginning of 2014, designed for plans with a minimum of $20 million in assets. The broker claims its ETF 401(k) offering can cut fees up to 30 percent when compared to an investment menu built on low-cost indexed mutual funds.

Nonetheless, adoption has yet to take off. Critics of ETFs in 401(k) plans say participants in larger plans with access to institutional class shares of mutual funds effectively neuter ETFs’ value proposition.

Critics also say ETFs in 401(k) plans may be less suitable than mutual funds because the are more commonly traded, just as individual stocks are more commonly traded than mutual funds. That can mean high trading commissions that are passed on to participants’ expense ratios.

— Check out What to Do When Your ETF Is Closing on ThinkAdvisor.