The $100,000 Question: RIAs and Investors Alike Would Allocate More Than One Third of an Extra $100k to ETFs

Advisors in New Study say ETFs and Mutual Funds Are Equally Important in Helping Their Clients Reach Investment Goals

Thursday, September 8, 2016 5:00 am PDT

Dateline:

SAN FRANCISCO

Public Company Information:

NYSE:
SCHW
"RIAs clearly understand the benefits that ETFs can provide to their clients as part of an overall strategy, but they view them as just one part – albeit an important part – of an overall strategy to help their clients achieve their investing goals."

SAN FRANCISCO--(BUSINESS WIRE)--Both individual investors and Registered Investment Advisors (RIAs) say ETFs have positively changed the way they invest and both groups plan to increase investments in these products in the years to come, according to the newest installment of the annual ETF Investor Study by Charles Schwab & Co., Inc. (“Schwab”). The survey, which explores the attitudes and behaviors of individual ETF investors, also explores the perspective of RIAs for the first time since the annual survey debuted in 2011.

RIAs Lead the Way

RIA adoption and understanding of ETFs stands out as notably strong, underscoring the pathfinder role of advisors in incorporating ETFs into their investing strategies for clients. More than nine out of 10 RIAs (92 percent) say ETFs have had a positive impact on the way they invest for the portfolios they manage, with 44 percent indicating the impact has been substantial.

RIAs currently hold an average of 33.9 percent of investments in ETFs, and believe that could increase to an average of 44.4 percent in five years. In the last year alone, more than half (52 percent) of RIAs say they’ve increased investments in ETFs, and 12 percent say those increases were significant. If their client had an extra $100,000 to invest, RIAs say they would put an average of $43,600 into ETFs.

In the year ahead, 54 percent of RIAs say they plan to increase their investments in ETFs. Looking even further out, nearly half (48 percent) of RIAs say they see ETFs as being the dominant investment type in the portfolios they manage in the future.

Significantly, while RIAs clearly embrace ETFs, most see the products as just one of many tools necessary for an effective investment strategy:

  • 56 percent say mutual funds and ETFs have an equally important role in helping their clients reach investment goals
  • Only three in 10 say they would consider using ETFs to replace individual stocks in a portfolio
  • Only one in four say they would consider using ETFs to replace individual bonds in a portfolio

“These numbers tell a compelling story,” said Heather Fischer, Vice President of ETF Platform Management at Schwab. “RIAs clearly understand the benefits that ETFs can provide to their clients as part of an overall strategy, but they view them as just one part – albeit an important part – of an overall strategy to help their clients achieve their investing goals.”

When choosing an ETF, advisors consider the following as most important:

  • Low expense ratio (79 percent)
  • Total cost (77 percent)
  • Liquidity /trading volume (72 percent)

And, when it comes to the ability to trade ETFs commission-free, one in three say that it is important for a brokerage firm to offer commission-free ETFs. Forty-five percent believe it is somewhat important, though not the only factor they consider in their buying decision. When evaluating a brokerage firm’s commission-free ETF offering:

  • Nearly three-quarters (72 percent) say the right selection of ETFs is extremely important
  • More than half (56 percent) say a broad selection of ETF categories is extremely important
  • Fifty-one percent say a broad selection of ETF providers is important

Steady Adoption by Individual Investors Continues

Individual investor adoption of ETFs also continues to steadily rise. Three out of four investors surveyed (76 percent) say that ETFs have had a positive impact on the way they invest their money.

On average, individual investors who use ETFs are now allocating nearly a quarter (22.5 percent) of their total portfolios to the products, compared to just 16 percent in 2012. And by 2021, individual investors expect their allocations will increase to 28.7 percent.

In the last year, 44 percent of investors say they’ve increased investments in ETFs, and 10 percent say those increases were substantial. And in the year ahead, 43 percent of investors say they plan to increase their investments in ETFs, with eight percent saying they expect those increases to be significant. In fact, individual investors say that if they had an extra $100,000 to invest, an average of $37,300 would go into ETFs.

“Individual investors, particularly when compared to RIAs, really view ETFs as a product that can solve for some of the challenges they face when investing on their own. Sixty-five percent of those surveyed say they would consider using stock-based ETFs instead of individual securities in their portfolios. And, notably, more than a quarter (28 percent) of investors say they can envision ETFs as the primary investment type in their portfolio in the future,” added Fischer.

Nearly half of individual investors (48 percent) say that the ability to trade the product commission-free is extremely important when evaluating the cost of an ETF. Forty-seven percent say it is important for a brokerage firm to have a commission-free ETF offering, and another 40 percent believe it is somewhat important, though not the only factor they consider in their buying decision. When evaluating a brokerage firm’s commission-free ETF offering, individual investors say the following criteria are extremely important:

  • Broad selection of ETF categories (52 percent)
  • No additional fees, e.g., short term redemption fees (51 percent)
  • Choice of commission-free ETFs within a category (41 percent)

Where Investors and RIAs turn for education

The 2016 ETF Investor Study by Schwab examined where investors and advisors seek out information and education about ETFs, and found a heavy emphasis on the materials and educational resources provided directly by ETF providers.

  • 86 percent of advisors turn to ETF providers’ websites when researching ETFs (vs. 45 percent of individual investors)
  • 66 percent of advisors say they look to ETF providers for guidance on ETFs. Of that group, 81 percent rate the quality of that guidance as good or excellent

About the Study

The 2016 ETF Investor Study by Schwab is the sixth installment of an annual online survey of more than 1,000 individual investors between the ages of 25-75 with at least $25,000 in investable assets who have purchased ETFs in the past two years. This year, Schwab also included a sample of 312 RIAs registered with RIA Database who have bought or sold an ETF in the last two years. Conducted by Koski Research from June 28 – July 20, 2016, the study has approximately a three percent margin of error. Survey respondents were not asked to indicate whether they had accounts with Schwab. All data is self-reported by study participants and is not verified or validated.

About Schwab

At Schwab, we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

A leader in the retail ETF market, as of July 31, 2016, Schwab had $287 billion in ETF assets custodied on its platform. More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube and LinkedIn.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus  by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

© 2016 Charles Schwab & Co., Inc., All rights reserved. Member SIPC (0916-L9TS)

Contact:

Charles Schwab & Co., Inc.
Erin Montgomery, 212-403-9271
Erin.Montgomery@schwab.com

Multimedia Files:

Preview image
INFOGRAPHIC: Millennials and ETFs: A Love Story (Courtesy of Schwab)
Preview image

Corporate Public Relations
Contacts for Journalists Only

 

888-767-5432

Subscribe

Business Wire NewsHQ℠