Financial advisor use and recommendation of ETFs is continuing to grow, outpacing all other investment vehicles, a new survey shows.

Nearly 80% of advisors currently use or recommend ETFs with clients, up from just 40% in 2006, according to a survey by the Financial Planning Association and the FPA Research and Practice Institute.

For mutual fund and ETF providers to distribute and market most effectively, fund managers, consultants and others note that providers must develop relationships with the registered investment advisor community. Andy O'Rourke, managing director and chief marking officer at Direxion, says communicating with advisors about the New York-based firm's lineup of alternative strategy mutual funds has been an increased focus in the last five years. Direxion has geared most of its outreach efforts toward education in the form of webinars and direct emails to those who express interest in their products. O'Rourke says wholesalers will also often attend industry conferences and hold face-to-face meetings with advisors while handing out printed material.

"We're building a brand with our marketing efforts but in terms of our individual advisors, they are our brand," says O'Rourke, who prior to arriving at Direxion in 2007 was director of distribution marketing for MassMutual Financial Group's Retirement Services division. "Our marketing to advisors is focused primarily on education."

Jonathan Dale, distribution director for SEI, attributes the rapid success among ETF sponsors to superior marketing strategies. "ETF providers have found a great deal of success using social media and digital marketing targeted to advisors," he says.

"At the end of the day, you can spend all of the marketing dollars in the world and if your product isn't providing a superior benefit, advisors aren't going to move their clients," says Aaron Klein, CEO at Riskalyze, a technology provider in Auburn, Calif. "We hear from advisor after advisor using our expense ratio analytics to drive down the cost of portfolios for their clients, and we're watching that shift from mutual funds to ETFs happen in real time, he says.


The $1.7 trillion exchange-traded sector still is well behind the $15.2 trillion mutual fund industry, according to recent Investment Company Institute statistics. Yet with mutual funds just slightly more widely used among advisors, the study by the Financial Planning Association also shows waning interest in mutual funds. While 50% of advisors indicate that they do not plan to decrease the choice of any investment vehicles in the next 12 months, 16% plan to decrease their use of mutual funds, while just 3% plan to decrease their use of ETFs.

RIAs are playing an important role for fund manager distribution and marketing of ETFs as well as other products. For the last nine years Phoenix Marketing International, a Rhinebeck, N.Y.-based research company, has released a semi-annual study to determine advisor ratings of the top 10 fund providers based on overall impressions and likelihood to consider recommending their products to clients.

"Although financial advisors are a difficult audience to reach, certain fund advertising has proven very successful, and it has helped translate into results for firms such as BlackRock, Franklin Templeton, and John Hancock," says Carl Uttaro, senior research analyst and product manager at Phoenix Marketing International. "These companies have recently had several strong advisor-targeted fund ads promoting how and why they are unique, successful products that are relevant in the current environment. Not surprisingly, each company is consistently ranked in the top tier when it comes to advisors' impression of or likelihood of consideration for the brand."


The Financial Planning Association's survey results also reflect an overall increased use of cash since 2006, when just 53% of advisors surveyed were using or recommending cash, compared to 79% in the latest survey. Advisors also seem to be moving away from annuities, with 41% currently choosing variable annuities, compared to a high of 58% in both 2006 and 2008. In addition, 29% of advisors surveyed say they currently use or recommend fixed annuities to clients, down from a high of 49% in 2010.

"The study seems to point to a shift toward investments with greater transparency and liquidity," says Valerie Porter, director of the FPA Research and Practice Institute, in a statement. "Perhaps advisors are responding to consumers' demand for lower cost investments that allow them to be more nimble in their investment approach. And I think it's safe to say everyone values cash a little more since last decade's market collapse." Other key survey findings: Although 57% of advisors believe a blend of active and passive management provides the best overall investment performance - taking into account costs associated with each style, 30% of advisors are likely to have increased their use of passively managed funds over the last year, compared with 18% for than actively managed funds.

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