Advisors Say Yes to ETFs, No to Crypto: FPA

Exchange-traded funds have been financial advisors’ investment vehicle of choice for clients for three years running, and their popularity continued into 2018, according to a new survey released Tuesday by the Financial Planning Association, the Journal of Financial Planning and the FPA Research and Practice Institute.

Eighty-seven percent of advisors said they currently used or recommended ETFs with clients, up from 72% in 2010 and just 44% in 2008.

Over the past five years, two-thirds of advisors have preferred a blend of active and passive management style, but are now leaning toward a purely passive approach. In the new survey, 22% said a passive approach provided the best overall investment performance considering costs associated with an active, a passive and a blended management style, up from 15% in 2017.

Forty-six percent of advisors in the survey said they planned to increase their use or recommendation of ETFs with clients over the next 12 months, down four percentage points from the 2017 poll.

“With only 200 active ETFs out a universe of nearly 5,000, the continued rise in advisors’ use of this investment vehicle is clearly congruent with the uptick in their adoption of a purely passive approach to investing,” Dave Yeske, managing director of Yeske Buie and practitioner editor of the Journal of Financial Planning, said in a statement.

“And while 65% of advisors continue to favor a blend of active and passive approaches, these results suggest that the ratio may be shifting in favor of passive.”

The survey, which was fielded online in April and May, received 265 responses from financial advisors of various backgrounds and business models.

Crypto Gets a Big ‘No’

The survey found that 53% of advisors were responding to client questions about cryptocurrencies, but only 1% were using or recommending these investments — a result Yeske called “gratifying.” The report said this trend would likely continue as only 2% said they would increase their usage or recommendation of cryptocurrencies over the next 12 months.

Financial advisors are wise to talk to clients about cryptocurrencies, as not doing so could risk losing their business to a competitor.

Asked their opinion of cryptocurrencies as an investment, 24% of survey respondents considered them a “gamble; only worth investing money you can stand to lose”; 29% saw them an “interesting concept to keep an eye on, but not invest in yet”; 18% said they were a “fad that is best avoided”; and 26% said they were “not a viable investment option.”

A mere 2% of advisors said they were a viable investment option that had a place in a portfolio.

Some wealthy investors, who could afford to lose money on cryptocurrencies, will have nothing to do with them — Warren Buffett has called them “probably rat poison squared.”