An overwhelming majority of financial advisors surveyed at the Morningstar ETF Invest Conference this month in Chicago said they plan to increase their use of ETFs in their retail investors portfolio over the next year.
The group cited the funds' liquidity and ease of use, according to a survey conducted by Guggenheim Investments, a private global financial services firm with more than $160 billion under management. Out of more than 200 total attendees at the early October conference, 55 participated in the survey, according to Guggenheim. The firm conducted the study on site.
"While the anticipated tax changes in 2013 may not have an immediate impact on ETF industry growth, there will be implications for how advisors are managing their clients portfolios," William Belden, Guggenheims director of product development, said in a statement. "The potential benefits of fixed income ETFs, such as liquidity and convenience, will be a significant impetus to advisors increased usage."
Specifically, the survey found that 78% of financial advisor respondents plan to increase their use of ETFs in retail investors portfolios over the next year. Meanwhile, 20% said they are unsure whether they plan to increase their use and only 1% did not plan to increase their use of ETFs over the next year, Guggenheim said.
In addition, nearly 71% of advisors reported that convenience and liquidity are the biggest advantages to ETFs, while 16% cited low costs the remaining 13% said transparency and tax advantages are the biggest benefits, according to the survey.
Among the most significant obstacles preventing greater adoption of fixed income ETFs is the market environment, Guggenheim said: 41% of respondents cited the current low interest rate environment as the leading challenge facing fixed income ETF adoption and 27% said it was economic uncertainty. Market volatility and potential tax changes emerged as lesser concerns, the survey found.
That said, a significant number of advisors said they are concerned about anticipated tax changes in 2013. The survey found that 35%of financial advisors are helping their clients prepare by educating them about the tax implications to their portfolios. Another 31% are waiting to see what happens with the tax laws before making any changes to their clients investments. The remaining respondents, or 13%, said they are taking advantage of tax-loss harvesting (13%), taking gains this year at a potentially lower rate (11%) or moving their clients into lower tax structured products (11%).
"ETFs provide access to virtually every market segment, in a cost-effective and tax-efficient manner, and represent a key evolutionary development in the growth of the asset management industry," said Anthony Davidow, a Guggenheim managing director and portfolio strategist. "We anticipate that ETF usage will continue to expand over the next year as more financial advisors embrace their cost-effective structure. ETF growth and evolution will likely come from product innovation, broader acceptance from advisors, and the growth of model builders."
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