RIAs’ Use of ETFs Continues to Climb: Schwab Study

While a greater percentage of registered investment advisers are using exchange-traded funds in client portfolios—with more than half (52%) saying they’ve increased investments in ETFs in the past year—most RIAs see ETFs as just one tool for an effective investment strategy, according to Charles Schwab’s just-released 2016 ETF Investors Study.

This is the first year that Schwab gauged RIAs’ use of ETFs, polling 312 RIAs registered with RIA Database who have bought or sold an ETF in the last two years.

RIAs currently hold an average of 33.9% of investments in ETFs, and they indicated that could increase to an average of 44.4% in five years. Of the 52% of RIAs that said they increased investments in ETFs over the past year, 12% said those increases were significant.

If a client had an extra $100,000 to invest, RIAs said they would put an average of $43,600 into ETFs, according to the study, which was released during Morningstar’s annual ETF conference in Chicago.

In the year ahead, 54% of RIAs said they plan to increase their investments in ETFs, and looking even further into the future, nearly half (48%) of RIAs said they see ETFs as the “dominant investment” type in the portfolios they manage.

“These numbers tell a compelling story,” said Heather Fischer, vice president of ETF Platform Management at Schwab. “RIAs clearly understand the benefits that ETFs can provide to their clients as part of an overall strategy, but they view them as just one part—albeit an important part—of an overall strategy to help their clients achieve their investing goals.”

When choosing an ETF, the study found advisors consider the following as most important:

• Low expense ratio (79%).

• Total cost (77%).

• Liquidity /trading volume (72%).

While 9 out of 10 RIAs (92%) said ETFs have had a positive impact on the way they invest for the portfolios they manage—with 44% indicating the impact has been substantial—RIAs see ETFs as complementing other products: