Despite increased flows to passively managed solutions, most financial advisors continue to rely on actively managed solutions, including mutual funds and separately managed accounts, according to a new research report by Practical Perspectives.
The report “Financial Advisors and Use of Actively Managed Solutions — 2017” also finds that many expect their use of active management won’t diminish and may even increase in the foreseeable future.
Most advisors using actively managed solutions have not changed their overall use of these solutions in the past 12 months, according to the report, and only 1 in 5 advisors have decreased use.
“Active management is fundamental to how most advisors work with their clients, and this is rooted in many factors including their desire to help manage portfolio volatility and reduce risk,” Howard Schneider, president of Practical Perspectives and author of the report, said in a statement.
The report determines that the factors that drive advisor use of actively managed solutions include the desire to reduce portfolio volatility, accessing strategies not typically available in passive vehicles, the potential for superior returns, and advisor comfort and experience in using active investments, especially mutual funds and SMAs.
According to Schneider, “providers of actively managed solutions should recognize that most advisors frame the issue as active together with passive, rather [than] active versus passive.”
The report finds that the use of actively managed solutions is widespread among advisors — with most using a mix of active and passive strategies — but only a limited segment (primarily RIAs) exclusively dependent on passive investments.
“Advisors perceive combining active and passive investments as the best solution for their clients and only a limited portion of advisors rely exclusively on either active or passive investments,” Schneider said in a statement.
The use of passive solutions is primarily a long-term strategic decision and advisors do not perceive the use of passive solutions to be a fad, according to the report.