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October 31, 2018 at 12:37 PM
Independent financial advisors believe that the biggest block of clients’ portfolios should be held in low-cost core investments, according to a new study from Schwab released at its Impact 2018 conference in Washington.
The study of 381 independent advisors found that on average advisors believe core holdings should account for 62% of clients’ portfolios, but more than one-third of those surveyed say the allocation should be 70% or higher.
Schwab defines core holdings as broad large-, mid- and small-cap equities, broad international equities and corporate and Treasury bonds.
“Our industry has a reputation for selling products that can be too expensive and complex, but advisors are continuing to advocate for simplicity, transparency and choice in client portfolios,” said Marie Chandoha, chief executive of Charles Schwab Investment Management (CSIM) , in a statement.
ETFs are the most popular core holding among the advisors surveyed, accounting for 29% of allocations. Moreover, 69% of advisors surveyed expect to increase that allocation in the next five years. In contrast, just 53% expect to add mutual funds to their clients’ core holdings in the next five years, almost as much as the percentage who expect to add individual stocks (52%).
Individual stocks and mutual funds are the next popular core holding after ETFs, accounting for 24% and 25% of allocations, followed by individual bonds, at 18%, and other holdings, at 4%.
“ETFs continue to be significant” among core holdings of advisors’ client portfolios, said Tony Davidow, alternative beta and asset allocation strategist for the Schwab Center for Financial Research. “These building blocks are here to stay.”
The study did not disclose what portion of ETF or mutual fund holdings are in stock or bond funds or in other assets, but it’s likely that the majority of ETFs are equity ETFs since they dominate that market. Current core holdings of advisors’ clients are split almost equally between passive (49%) and active strategies (51%).
