Responding to their customers’ increased appetite for more sophisticated and flexible investment choices and search for more personalized attention, financial advisers plan to recommend mutual funds 10% less frequently, with the share of their clients’ portfolios invested in them declining by 35% to 31% by 2009. That’s according to a survey of 1,266 advisers that Cogent Research conducted in October.

“Advisers, armed with better technology and more product options, and tasked by clients to be proactive wealth managers, are more readily exploring newer investment vehicles to best meet individual client needs,” according to Cogent.

The product that will gain the most from this shift is separately managed accounts, followed by exchange-traded funds. Hedge funds and variable annuities, however, will not gain advisers’ favor. But advisers serving high-net-worth clients will continue to recommend closed-end funds to them.

Advisers are simply responding to clients growing reception to new investment vehicles, said Bruce Harrington, managing director at Cogent.

The survey also found that fewer than 20% plan to increase their use of open-end mutual funds but that they plan to remain loyal to six primary mutual fund providers, the two most popular being American Funds and Franklin Templeton.

“There are consistent themes that investment product manufacturers need to respect,” Harrington said. “It’s a simple tenet of marketing: a product must capitalize on its positive attributes and combat its negative ones. How can financial services companies respond to these clear needs by advisers? Improve loyalty ratings. Build brand. Increase innovation and communicate greater product differentiation. Advisers will respond to those firms and products that can execute on these themes.”

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