Investors are showing signs of renewed optimism and advisers should find it easier to market alternative investment products to them, according to a recent survey of investors by Harris Interactive, a research firm based in Rochester, N.Y.
A total of 2,337 investors were interviewed August 2001 and in January 2002, and seem to remain upbeat about the market despite the recent downturn. For example, 92% (August) and 96% (January) said they were still optimistic about the market's future performance, and 85% (August) and 88% (January) said the recent downturn presents buying opportunities.
That said, that optimism has not translated into action for many investors -- so far. According to the survey, investors are (on average) holding about 21% of their assets in cash. "People are just waiting for the right time and the right opportunity to do something," said Sandra Radoff, a senior account director at Harris Interactive and guest speaker at the Amex conference.
Radoff said this presents advisers with opportunities to market ETFs to their clients. However, advisers face a number of challenges, including a lack of knowledge about ETFs and the entrenched position of mutual funds in most investors' portfolios.
For example, the survey indicated investors have little to no knowledge of ETFs -- only 21% were very familiar with the vehicle, while a mere 17% said they had owned or currently own an ETF. What's more, ETFs (on average) represent about 1% of the respondents' portfolios, compared to mutual funds at 37%.
It may not be that hard to get clients to invest in ETFs. According to Radoff, providing more information should help to persuade clients. Survey participants were asked whether they would purchase ETFs based on their current level of product awareness. After reading a general statement about them, roughly 20% said they were extremely or very likely to purchase an ETF, but as more information was provided, the figure rose to 27%.
"While that may not seem like a large number to see a jump like that after people were exposed to a little bit of information is pretty significant," Radoff said.
As part of the same study, Harris Interactive also evaluated 200 financial advisers, and found a much higher level of awareness among them. Almost 47% were very familiar with ETFs, and 29% recommended the products at least occasionally. The survey found that the top reasons advisers dont recommend ETFs are lack of information on the part of both adviser and client, as well as less-added value with passively managed investments.