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RIAs Love ETFs, Just Not for the Reason You Think

Everyone talks about cost and tax advantages, but advisors said the primary driver for them using exchange traded funds is really the underlying index.

Registered independent advisors love exchange traded funds. The majority (55 percent) of respondents in TD Ameritrade Institutional’s 2018 RIA Sentiment Survey said they use ETFs more than mutual funds or stocks in client portfolios. More than a quarter of RIAs (27 percent) also said the sale of mutual funds will fund new ETF purchases this year.

But neither lower costs nor tax advantages, relative to mutual funds, are the primary reason independent advisors choose ETFs. The number one reason RIAs chose to use a particular ETF in a client portfolio was the underlying index, followed by performance and then the total cost, according to TD’s survey of 300 RIAs.

The same survey also found that advisors ranked allocation above cost and liquidity as a reason for using ETFs in general.

This year’s survey also revealed that most RIAs do not buy or switch ETFs simply because a particular sponsor introduces a new offering. Again, asset allocation strategies and lower costs were what drove their decisions regarding ETFs.

Other Survey Findings

The majority of RIAs are also optimistic about the U.S. and global economies in 2018, the study found. On the U.S. economy, 14 percent of RIAs were “very optimistic”—the most in 8 years—and 56 percent were “somewhat optimistic.”

When asked about the markets through the first half of 2018, 46 percent of advisors said they expect the stock market to be higher. Meanwhile, only 11 percent had the same outlook for fixed income this year.

About a quarter of advisors had a neutral outlook on the year and only 7 percent described themselves as “somewhat pessimistic.” None of the 300 respondents chose “very pessimistic” as a response. Results for the global economy were almost exactly in lockstep with the U.S. outlooks.

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