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Boomers Are Biggest Investors in Surging ETF Market: Study

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Investors are pouring huge amounts of capital into exchange-traded funds, attracted by their low cost and investment flexibility.

A survey of 1,500 financial advisors released this week by Pershing, a BNY Mellon company, in conjunction with Beacon Strategies examines ETFs’ explosive growth.

The survey found that 64% of advisors considered ETFs core to their clients’ portfolios, while 24% said they used these vehicles for diversification. Sixty-eight percent of advisors in the study who used ETFs said they would increase usage over the next 12 months.

In addition, 55% said more than half of their clients had ETFs in their portfolios. This included 35% of advisors that had between three-quarters and 100% of clients with ETFs in their portfolios.

The survey upended a widespread industry notion that ETFs particularly resonate with younger investors. It found that 48% of baby boomers were receptive to ETF use, followed by 29% of investors 71 and older. In contrast, only 17% of Gen Xers and 6% of millennials used ETFs.

Justin Fay, director of financial solutions for alternative investments and ETFs at Pershing, said in a statement that ETF usage in portfolios was most prominent among the older cohort “mainly because these investors have become increasingly aware of the cost efficiency and access to a variety of styles that ETFs may provide, which can help them achieve their financial goals.”

ETF asset flows in June set a record. Last year, ETFs gathered in $238 billion, nearly on a par with their record inflows of $243 billion set the previous year. Earlier this year, PricewaterhouseCoopers forecast that global ETF assets would reach $5 trillion by 2020.

Forty-three percent of advisors in the poll said performance was their most important criterion for choosing specific ETFs, while 26% cited expense ratio. Only 2% said the fund provider’s brand recognition was important.

Advisors told researchers “concerns around ETF structure” was their biggest barrier to ETF usage. The report said this signaled a need for further education and potential market structure improvements.

“ETFs can be a particularly attractive investment option for advisors, offering customizable solutions and potentially lower-cost access to markets, countries and sectors than many other comparable investment vehicles,” Fay said.

“While the RIA channel continues to dominate in terms of ETF use, we are seeing increased adoption across other channels, particularly independent broker-dealers who are implementing ETFs more frequently within portfolios, and this trend is expected to continue.”     

The report also incorporates interviews with industry stakeholders, including advisors, registered investment advisor executives, global wealth managers and ETF managers, looking at a range of other related issues.

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