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How Financial Advisors are Using ETFs


When exchange traded funds first hit the market, traditional stock traders had a hard time adopting the new investment idea, but now most don’t even hesitate to use ETFs if they want to take a broad market position.

“At first, investors were highly skeptical of ETFs,” Chuck Simko, a portfolio manager at MainStreet Advisors, said in a Wall Street Journal article. “Early on, people had problems getting their heads around ETFs, Now, they don’t even think twice about using them. I don’t spend nearly as much time these days educating clients about how ETFs are different from mutual funds.”

For instance, ETFs are low cost, tax efficient and transparent investment vehicles.

“We’ve found that using ETFs as part of a passive portfolio management strategy provides a very effective shield against the deceptive business practices so prevalent in the retail funds industry.” Ric Edelmanan of Edelman Financial Services said.

Ron Vinder, an advisor at UBS Financial Service, also remembers how other advisors and managers tried to dissuade him from picking up ETFs. The advisors argued that ETFs would be a net liability because investors would just do it themselves.

“After deciding to take my practice in that direction, I didn’t have any clients tell me they were dropping us to invest for themselves using ETFs,” Vinder said in the article. “”The use of ETFs fits perfectly into an investment process where an advisor serves as an objective voice to help investors focus on their longer-term goals.”

As the ETF industry matures, more advisors are able to put together a score card for an investment portfolio.

“In discussing our portfolios with potential customers, I can show results going back more than 12 years in separate accounts using only ETFs,” David Kotok, chief investment officer at Cumberland Advisors, said in the article. “Advisors with demonstrated long-term track records of building portfolios using ETFs have something more concrete to illustrate how their investment process works.”

For more information on ETFs, visit our ETF 101 category.

Max Chen contributed to this article.

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.