Whereas financial advisers have long been known for avoiding index funds, and their newer, exchange-traded fund brethren, for fear of not appearing to warrant their fees for providing active advice, that is changing, The Wall Street Journal. Advisers are beginning to see the merits of ETFs’ low fees, tax efficiencies and narrow slices of the market—and instead of leaving it to mutual fund portfolio managers to create a basket of diversified funds, many advisers are now driving asset allocation themselves by creating a basket of ETFs.

 

“ETFs have provided opportunities to lower expenses, diversify portfolios more and provide better returns with less risk,” said Tom Lydon, editor of ETFtrends.com.

 

“There may be an area where I think there’s a real opportunity, and it’s in a narrow slice of the market,” said Atlanta financial adviser Scott Kays.

And with the market so volatile and even four-star mutual funds faring so poorly, many advisers are favoring market-tracking choices. “It’s hard to pick a money manager who can consistently even meet, let alone beat, their benchmark,” said Kevin Ellman, a financial advisers based in Ridgewood, N.J., who favors ETFs.

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