Slideshow Changes afoot in how advisers manage portfolios

  • June 15 2016, 3:48pm EDT
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ETFs becoming the new default investment

In less than a decade, ETFs have become the most important investment tool in advisers’ toolboxes. More than 80% of industry pros now use the passive funds – that’s double from 10 years ago, according to a recent study by the FPA.

Other dramatic wealth management shifts, from the reasons planners now give for rebalancing asset allocations, to the outlook on the U.S. economy, were revealed by the FPA’s Trends in Investing survey. Click through our slideshow to learn more about strategies advisers – or their competitors – are utilizing today.

FPA’s 10th annual study surveyed 283 advisers in April, 98% of whom are CFP practitioners and about half identify as independent IARs/RIAs.

Rise of ETFs shows no signs of waning

Over the last decade, these investments were the only ones that did not decline in popularity, whereas all others rose and fell.

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ETFs show clear lead in future expected use

Nearly half of advisers say they plan to use or recommend ETFs more frequently in the next 12 months, while 26% of advisers say they do not plan to increase the use of any investment products.

Mutual funds take a hit

Non-wrap mutual funds top the list of products advisers plan to phase out. In contrast, only 3% of advisers want to reduce the use of ETFs. Over half of advisers prefer to stay with their current strategies.

Cheaper is better

75% of advisers cite lower costs as the reason for preferring ETFs. Tax efficiency and trading flexibility are also major selling points for around half of surveyed advisers.

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Too expensive to sell

Not all types of ETFs are doing well. Only a quarter of advisers used smart beta ETFs with clients in the last year.

Dave Yeske, practitioner editor of the Journal of Financial Planning, attributes this to their more costly and risky nature, in addition to the fact that advisers recognize the strategies embedded in smart beta are nothing new.

Striking the perfect balance

Six in 10 advisers now believe that a combination of active and passive styles leads to the best overall investment performance.

Economic factors drive asset rebalancing

Wealth planners cite an uncertain economic and financial future, together with the need for continuous portfolio re-evaluation, as the top two reasons behind strategy changes.

Between last year and now, administrative factors such as costs saw the largest increase as a leading cause of portfolio reassessment.

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Uncertain now, hopeful for the future

Of advisers polled, 51% hold a bullish view on the economy for the next two years. That figure rises to 64% for the next five years.

For all timelines however, an average 41% of advisers are playing it safe by stating that they are neither bullish nor bearish.