Advisers Continue to Select ETFs as Preferred Investment Vehicle

Exchange-traded funds (ETFs) are continuing their momentum of popularity as the tool wins its fourth consecutive year as the top investment vehicle among advisers, a new survey by the Financial Planning Association (FPA), the Journal or Financial Planning, and FPA Research and Practice Institute reveals.

According to the FPA, 87% of advisers are currently using or recommending ETFs to their clients, out of 20 investment vehicle options listed in the survey. Additionally, 46% of advisers plan to expand their recommendation of ETFs in the upcoming 12 months.

Usage of ETFs has risen over the past eight years, says the FPA, with % of survey respondents utilizing and recommending the vehicle back in 2008, compared to 72% in 2018.

Following the popularity behind ETFs, the survey found blends of active and passive management styles are also preferred by advisers, with 65% of survey respondents voting in favor of them. While a consistent trend over the past five years, the survey says advisers are showing a higher preference towards purely passive approaches, as 22% voted for the style in 2018—an increase from 15% in 2017.

“With only 200 active ETFs out a universe of nearly 5,000, the continued rise in advisers’ use of this investment vehicle is clearly congruent with the uptick in their adoption of a purely passive approach to investing,” says Dave Yeske, managing director of Yeske Buie and practitioner editor of the Journal of Financial Planning. “And while 65% of advisers continue to favor a blend of active and passive approaches, these results suggest that the ratio may be shifting in favor of passive.”

Other preferred investment options include cash and equivalents, as 83% of advisers voted usage and recommendation of the product in 2018. Twenty-four percent also say they plan to increase their use/recommendation of these vehicles over the next 12 months.

Yet, aside from ETFs, no other investment vehicles ranked as highly in favor, reports the FPA. Only 19% of respondents plan to raise their use of mutual funds, and 19% plan to grow their individual stock-use.

Among the least-utilized investment vehicles are cryptocurrencies, as only 1% of advisers currently operate or recommend the investment type. According to the survey, only 2% believe they are a “viable investment option that has a place in a portfolio,”; 24% see cryptocurrencies as a “gamble” and “only worth investing money you can stand to lose,”; 29% think the investment is an “interesting concept to keep an eye on, but not invest in yet,”; 18% voted it is a “fad that is best avoided,”; and 26% consider them as “not a viable investment option.” Unsurprisingly, the FPA says usage is not likely to increase, as only 2% report they will raise usage/recommendation of cryptocurrencies over the coming 12 months.

The report surveyed 78% of Certified Financial Planner (CFPs) professionals, with 55% indicating they work as independent IARs/RIAs. More information on the study can be found here.