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Inside ETFs Conference
inside-etfs-2020-hougan-nadig.jpg Photo by Diana Britton
Matt Hougan (right) and Dave Nadig giving the State of the ETF Union keynote at the Inside ETFs conference.

The State of ETFs 2020: Real Advice Is Your Grand Challenge

Dave Nadig and Matt Hougan declared at Inside ETFs that investing is a solved problem; now advisors need to rethink the core of their businesses and how they allocate their time.

Advisors spend an average of seven hours a week on the investment portion of their clients’ portfolios, according to a survey by But it’s now easy and essentially free to execute an investment portfolio. Advisors, instead, should reevaluate their priorities and spend more time offering “real advice” to clients, said Dave Nadig, chief investment officer at ETF Trends, and Inside ETFs Chairman Matt Hougan, speaking at the Inside ETFs conference in Hollywood, Fla.

“We’re all sitting at zero. Investing is fundamentally a solved problem,” Nadig said during the conference’s State of the ETF Union session. “We all know we should be in fairly boring, fairly static portfolios and that’s probably the right thing. It means that now you in this business have to be doing something other than just providing investment advice. You have to be providing real advice.”

“Investing shouldn’t be occupying 20% of your time as an advisor,” said Hougan, global head of research for Bitwise Asset Management. “You should be focused on other things.”

One thing Nadig argued that advisors should be doing more of is behavioral coaching. Some 83% of advisors believe it’s important, according to a survey by Natixis and Tulip. But only 6% of clients believe behavioral coaching is important. Clients don’t believe they’ll do anything wrong, he said.

“Real world investor experience is never keeping up with what you think it’s going to be, with what that index line’s going to be,” Nadig said.

Hougan then put a long list of challenges outside of investing that clients could face, including taxes, insurance, bill payment and travel planning, among others.

“Where does optimizing their portfolio fit on this list?” he asked. “Where does it fit compared to career growth? Where does it fit compared to helping them with salary negotiations? Where does it fit compared to improving their taxes or Social Security planning? Where does it fit compared to helping them fill out forms to apply for financial aid at colleges?”

Hougan said advisors need to restack their priorities. Investment management should probably be somewhere in the middle, but it may also be time for advisors to rethink how they charge for their services. For instance, for $30 a month, an investor at Schwab can get access to a Certified Financial Planner.

“Does it make sense to charge AUM-based fees if managing money is not the primary utility you’re delivering to clients?” Hougan asked.

Advisors need to let go of higher-fee products, higher-fee custodians and commissions.

“Invest in the difficult work of transitioning so you can get those costs as low as possible,” Hougan said. “And then, as we enter the 2020s, it might be time to rethink the core of what your business is and the service you provide to clients.”

That said, spending time on the investing side should not go to zero.

“There are still a few edge problems that you need to pay attention to that maybe you aren’t paying attention to,” Hougan said.

Cash is one thing advisors should pay attention to; hidden fees are the new black in investing, he said. When fees go to zero, investors pay in ways that they don’t know, and that’s happening in investing now. Schwab, for instance, makes 30 basis points on cash, way below the 1.7% investors should be making on cash.

Environmental, social and governance (ESG) factors are another area advisors should focus on, Nadig said. The flows to ESG products have been phenomenal, he said. And advisors need to be able to talk to clients about them.

“ESG is here. You may not believe it; you may not care about it. But some of your clients are going to,” he said.

Cryptocurrencies is another area to pay attention to. It’s currently the best-performing asset class in the world, and some clients are likely to ask about it.

Last, there are many new active ETF structures, such as nontransparent active ETFs, just recently approved. There are six or seven structures, and advisors don’t need to know about each one of them. But they need to have something to say to clients about it, Nadig said.

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