NEW YORK (September 26, 2024) – ISS Market Intelligence (MI), a leading provider of data, analytics, insights, media, and events solutions to the global financial services industry, today announced the latest results of its ISS MI Advisor Pulse Series – Vehicle Preferences, Portfolio Construction and Direct Indexing study, comprised of results from over 800 interviews with U.S-based financial advisors in July 2024.
The report highlights a continuing shift in advisor preferences, as ETFs are increasingly becoming the preferred vehicle of choice over open-end mutual funds. When presented with the same investment strategy from a top asset manager across multiple vehicles, 60 percent of advisors expressed a preference for ETFs, while only 15 percent cited mutual funds. Passive ETFs account for the largest portion of net new ETF assets, but advisors have displayed increasing interest in actively-managed strategies. Active ETFs recorded the highest number of advisors planning to increase usage over the next 12 months at 53 percent. Cost considerations stood out as the top factor driving this shift into both active and passive funds, with 41 percent of advisors emphasizing fees and 33 percent highlighting tax efficiency as their primary reasons for choosing ETFs. “In our view advisor bullishness on active and passive ETFs is more a function of vehicle appropriateness and a reflection of advisors’ desire for cost containment and tax efficiency rather than a sign of philosophical commitment to active or passive investing.” said Ashley Wood, Managing Director, ISS Market Intelligence.
While direct indexing is not widely adopted among advisors today (33 percent of advisors cited usage of these capabilities), the report indicates a growing demand in the Wirehouse channel – almost 50 percent of Wirehouse advisors are currently using direct indexing capabilities, up from 37 percent just a year ago. Advisors identified the ability to exercise greater control over tax management as the top reason for employing direct indexing, followed by the ability to customize portfolios based on client requests. Wood added: “We see direct indexing as being at the tip of the spear in the broader shift towards a more personalized approach to portfolio construction. These capabilities are being leveraged by advisors to cement their respective value propositions and defend their alpha.
The continued rise of ETFs and the swelling adoption of direct indexing signal both opportunities and challenges for industry participants. Asset managers will have to consider these in their future productization strategies and refit business models for a ‘post-traditional mutual fund world.’ Meanwhile, wealth managers will need to ensure their advisor platforms are well equipped with scalable personalization toolkits that will assist advisors in shoring up their value narratives.”
To learn more about ISS MI’s Advisor Pulse Series, visit https://page.issmarketintelligence.com/advisor-pulse-series
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ISS Market Intelligence (MI) is a leading provider of data, insights, and market engagement solutions to the global financial services industry. ISS MI empowers asset and wealth management firms, insurance companies, distributors, service providers, and technology firms to assess their target markets, identify and analyze the best opportunities within those markets, and execute on comprehensive go-to-market initiatives to grow their business. Clients benefit from our increasingly connected global platform that leverages a combination of proprietary data, powerful analytics, timely and relevant insights, in-depth research, as well as an extensive suite of industry-leading media brands that deliver unmatched market connectivity through news and editorial content, events, training, ratings, and awards.
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