A group of leaders in the ETF industry say that as these financial products evolve and become more complex, the role of advisors is more significant than ever.
ETFs continue to put “industrial-strength institutional tools” in the hands of individual investors, “who need advisors to help them,” said Rory Tobin, the head of State Street’s global SPDR ETF business, during a panel discussion at the Inside ETFs conference taking place near Miami on Monday.
Since the financial crisis of 10 years ago, “There’s been a democratization” of the fund business, with more and more individuals and businesses able to do tactical asset-allocation work at low fees, according to Dave Gedeon, head of research and development for Nasdaq.
Pushing this growth is the fact that many funds fail to beat their respective benchmarks. Combine this with the “plethora of choice” in ETFs, and it’s hard not to argue that there’s never been a better time for advisors in terms of the strategic and tactical asset-allocation models at their fingertips, Gedeon said.
“It’s no longer just about a 60/40 [stock/bond] portfolio with some international product and a fee added,” he said. “But there are always two sides to a trade [with ETFs], so you have to pay attention. That’s why the advisor as fiduciary is important — to help clients make choices.”
It’s not easy for investors to keep up with all the trends and information in the marketplace. “Some people still do not know what Bitcoin is,” Gedeon added.
Still, he says, having more exchange-traded products means there are “better opportunities and outcomes” for investor clients and advisors alike.
As members of the panel agreed, with new products such as leveraged funds come new risks, and this means makers of such products need to ensure that the risks are clear and fully understood by investors.
“We want to give choice in a responsible way, and we want people to have the right portfolios and products,” given their risk profiles and other characteristics, said Sanjay Arya, Morningstar’s head of indexes.
“It’s about educating investors and getting them to understand what is in the products,” Tobin said. “In the past, some have not understood what they were buying, and we had to back away from [such ETFs].”