Exchange Traded Funds in MFDA

Exchange Traded Funds (ETFs) have been in existence for nearly three decades but it wasn’t until recently that they have grown in popularity. And it isn’t hard to see why from an investor’s perspective: when compared to other financial instruments, ETFs are attractive due to their lower fees, broad diversification, and considerations for tax efficiency.

But what about from the perspective of dealers and advisors? Below we list three reasons why ETFs belong in an investing portfolio.

Investor demand puts pressure on dealers to expand product shelf

Now more than ever, investors are becoming more savvy to what’s available in the market—and what type of financial products they don’t have access to. If investors don’t have access to the financial products they want, such as ETFs, they are willing to walk away.

In addition, the millennial investor is predicted to be the next cohort that will drive the growth in ETF investments. By not including ETFs as an investment option, dealers and advisors may be at risk of ignoring a whole segment of investors.

Helps manage fee compression

One of the biggest regulatory changes in recent years was CRM2, which became an eye opener for investors about the fees they pay. When combined with the move to fee-based accounts and the rise of the robo advisor and hybrid advisor model, it’s clear that wealth management firms and advisors alike are feeling the squeeze on their fees.

ETFs are considered low cost products since they do not include embedded trading costs and commissions. Investing in ETFs is a good way to include passive, active or smart-beta products to optimize some aspects of a portfolio—especially where there is pressure to minimize fees.

It also goes without saying that new regulations like targeted reforms, the move to client-best interest, and the growth of fee-based accounts could be influencing the composition of portfolios.

Aligns with best practices for retail investors

At the end of the day, let’s not forget one of the tried and tested best practices in investing: diversification and tax optimization.

As a risk management strategy, diversification mixes a wide variety of investments into a portfolio. ETFs can be used to create diversified portfolios that will be able to weather the ups and downs of the market. And over time, yield higher returns in the long-run while lowering the risk for the investor—and all at minimum costs.

With regard to tax optimization, ETFs typically offer tax efficiency advantages where capital gains and distributions can be optimized, and therefore, lower the tax bill for the investors.

Interested in how dealers can offer advisors and investors ETFs?

Learn more about offering ETFs through advisors, direct selling or digitally by filling out the form below or contacting Univeris at success@univeris.com.