Vanguard Chief Investment Officer Gus Sauter challenged the ETF industry to be responsible in developing new products and called for greater efforts to educate investors about ETFs.
The advice perspective and planning that today’s advisor provides is far more valuable than a buy, sell, or hold call. During a speech at the IndexUniverse “Inside ETFs” conference, Sauter said the ETF industry has been characterized by “growth and innovation.” From 2000 to 2010, assets in ETFs grew by about 30% per year. By comparison, traditional mutual funds grew by about 5% annually over the same time. Globally, ETFs now hold roughly $1.5 trillion in investor assets.
Sauter said that the rapid growth of ETFs has been largely good news for investors, providing them with greater access to diversified, low-cost index funds, as well as for advisors, providing them with simple, flexible investment tools for building well-constructed portfolios for their clients.
However, Sauter noted that ETFs have been blamed for a wide range of problems, from creating the May 2010 Flash Crash to contributing to ongoing market volatility.
Sauter encouraged ETF providers and investment advisors to play the role of an educator when it comes to ETFs. "I believe that as providers of ETFs and as distributors of ETFs, we have a responsibility to make sure the investing public is as informed about ETFs as it can be," he said.
Sauter also discussed the concept of “advisor’s alpha.”
Traditionally, the value proposition for many advisors has been based on their investment acumen and prospects for delivering higher returns than those of the markets. But, Sauter said, no matter how skilled the advisor, the path to better investment results may not lie with the ability to pick investments or strategies. Instead, advisors should consider a new value proposition based on alternative skills and expertise.
The advice perspective and planning that today’s advisor provides is far more valuable than a buy, sell, or hold call, Sauter said.
Mary Ann Tasoulas writes for Securities Technology Monitor.