ETF Growth Continues, With Advisors Using ETFs to Help Clients Invest Globally

Other data show advisors rely on ETFs to implement a wide variety of strategies. While "core" and "sector" exposures were most common, several other approaches were all within a few points of each other, including: alternatives exposure, directional market positions, factor or asset class exposures and country/region exposure. ETFs provide advisors and investors with attractive options for expressing their investment views, which has likely been a factor in their strong, consistent growth.

Given the increase in assets and the popularity of ETFs, one might expect most advisors to say they were extremely knowledgeable about ETFs and how they can be used in client portfolios. However, data from the latest AdvisorBenchmaking report show this is not the case. Only about half of advisors rated themselves as "an expert" or as "above average" about basic ETF issues, such as liquidity, investment methodology and trading. In the more technical categories—such as ETF structures or calculating the intra-day indicative value (IIV)—the percentage of advisors ranking themselves as an expert or as above average in knowledge dropped to just over a third (35%) and about a quarter (26%), respectively. Between a third and about half of advisors rated themselves as average in all categories. And nearly a third of advisors rated themselves as "basic" or "limited" on IIV calculation, which is a key metric for evaluating ETF pricing.

What methods do advisors seek out when trying to educate themselves about ETFs? ETF provider web sites are the most utilized source for ETF information, indicating such material is useful to advisors. But given advisors' gaps in knowledge, there appears to be room for providers to deliver more and deeper educational content on key ETF issues. Of the top five education sources for advisors, three are from Morningstar—a testament to the robustness of Morningstar's content. Yet, here again, one could cite the self-reported gaps in knowledge to suggest that all information providers could be doing a better job in the realm of ETF education. Advisors, too, may need to step up their education efforts and not be

satisfied with average or below-average knowledge. That will be critical if ETF assets are to grow, and advisors expect them to do so, according to the 2011 AdvisorBenchmaking report. The survey 

Most investors are likely to continue to hold a large percentage of their assets in mutual funds, but ETFs are becoming a more acceptable and desirable option. While mutual funds and ETFs may offer a clear advantage in specific situations or with specific clients, both are important asset-management tools and here to stay. Savvy advisors will ensure that they have the knowledge needed to explain ETFs and their benefits to clients to help them meet overall investment objectives.showed that more than half of advisors (54%) report that they will be increasing their use of ETFs in the next three years. That number is down from the 71% level in 2010.