5 ‘Irrefutable’ Trends That Will Increase Advisors’ ETF Use

3. Demographic disruption

Thomas identified several demographic changes that are starting to disrupt the advisory market, including generational, geographical and gender.

Advisors’ marginal clients are changing from a baby boomer to a Gen Xer and a millennial, which has “dramatic implications for how you serve them and how they invest,” Thomas said.

In addition, the growth of wealth is shifting geographies.

“We have decelerating GDP growth in developed countries like the U.S., like Europe, like Japan, and accelerating GDP growth in emerging economies like Asia-Pacific or Africa,” Thomas explained.

Meanwhile, wealth is also starting to shift hands from men to women. In the U.S., women now own 51% of private wealth. Globally that number is 30%, up from 25% in the last five years.

“If you are an advisor, that means your marginalized client is going to be younger, they’re going to likely be from another nationality, they’re going to be ethnically diverse, and they’re going to be a woman,” Thomas said.

What does this mean for ETFs? According to Thomas, research and surveys show that all of these changing demographics “actually prefer ETFs.”

“You see them investing in them in greater proportions,” he said. “This is why it is an irrefutable trend and why we’re going to see more investments in those types of vehicles.”

4. A drive toward investment efficiency.

While there is “ad nauseam debate” about active versus passive investing, Thomas sees the underlying trend as a relentless drive toward investment efficiency.

“We want the maximum amount of results for the least amount of effort,” Thomas said. Adding, “In this drive toward investment efficiency … prudent investors are going to be increasingly focused on things like optimizing risk and return.”

ETFs are increasingly giving advisors the “wherewithal and the ability” to do this better, according to Thomas.

“There are certain ways that I can get exposure traditionally to size or value, some of them are what we call active management,” Thomas said. “If you’re [investing] efficiently in an alternatively weighted index strategy, the practical reality is oftentimes you can get that risk exposure more efficiently, with less effort and less [wasted cost].”

5. Man plus machine.

“If you look within financial services, we’ve been relatively slow to really adapt to many of the benefits offered by technology,” Thomas said. “In an asset management we’ve been particularly slow.”

Recently, robo-advisors have started to proliferate the industry. But Thomas stressed that advisors shouldn’t be concerned about the argument of “man versus machine” but rather “man plus machine” – calling for the integration of human intelligence and artificial intelligence.

Thomas believes this increasing use of technology among advisors will lead to an increasing use of ETFs.

“When you step into a digital investment advisory world, ETFs, relative to the other choices available today, are simply a better tool or building block to use,” he said.

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