Smaller RIAs Embrace ETFs

ETF Trends

Smaller registered investment advisors allocate a great percentage of client assets to exchange traded funds than their larger competitors, according to a recent Financial Times survey.

Independent RIAs with $300 million to $1 billion in assets under management, on average, devote 16.1% of assets to ETFs compared to 8.1% allocated to ETFs by RIAs with more than $2 billion in AUM, Ignites reported.

The data is based on an Ignites Research survey of 300 RIAs with a minimum of $300 million in AUM and median AUM of $1.5 billion.

Overall, firms with under $1 billion in AUM are more likely to use passive products, according to the survey.

While smaller money managers are showing a willingness to embrace ETFs, so are scores of large asset managers. Twenty-five of the Top 50 Registered Investment Advisors (RIAs) use ETFs in client portfolios, according to RIA Database.

Top ETF holdings within that group include the iShares Core S&P 500 ETF (IVV) , the Vanguard FTSE Emerging Markets ETF (VWO) and the SPDR S&P MidCap 400 ETF (MDY) .

Data also show increased usage of ETFs among advisors, regardless of AUM. A study by Cerulli Associates released earlier this year showed RIAs’ use of ETFs increased 27% annually over the past five years. [Advisors Increase Use of ETFs]

Earlier this year, Cogent Research and Invesco’s (IVZ) PowerShares unit, the fourth-largest U.S. ETF issuer and one of the leading purveyors of smart beta funds, said a quarter institutional decision makers indicate they are already using smart beta ETFs, implying significant room for growth. Speaking of growth, “over the next three years, institutions plan on increasing their use of smart beta ETFs more than any other category (including market-cap weighted ETFs),” according to PowerShares and Cogent. [Advisors Increasing Use of Smart Beta ETFs]

Institutional investors are also boosting their ETF usage. A study conducted by Greenwich Associates and sponsored by BlackRock (BLK), the world’s largest asset manager, ndicates institutional usage of exchange traded funds is growing and will continue to do so. The study shows 46% of institutional ETF investors surveyed allocate 10% or more of total assets to ETFs with 47% saying they expect to boost ETF usage over the next year.

The results of that study were released in May.


ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments (0)