Advisors To Continue Increasing Their Use Of ETFs, Cerulli Predicts

The Research Firm Expects RIAs Will Continue To Use ETFs More Than Other Advisors.
Matt Apkarian, Associate Director, Cerulli Associates
Matt Apkarian, Associate Director, Cerulli Associates

Exchange-traded fund (ETF) asset growth over the last decade has significantly increased, driven by increased ETF adoption by financial advisors and end-investors, Cerulli Associates said Tuesday, predicting advisors will only continue increasing their use of ETFs.

Although ETFs have “experienced extraordinary asset growth during the past decade, the drivers of that growth, in terms of investor adoption, have not been uniform,” the research firm says in its latest Cerulli Edge – The Americas Asset and Wealth Management Edition report.

As of Dec. 31, 2022, the retail financial advisor intermediary channels collectively owned $4.3 trillion, or 66%, of total ETF assets, Cerulli said.

Wirehouses ($1.2 trillion) and the independent RIA ($1.1 trillion) channels are the two largest retail financial advisor intermediary segments in ETF assets, according to Cerulli.

Financial advisors say they expect to increase their use of ETFs, regardless of the channel they are in, Cerulli said.

RIAs are expected to continue being the top channel for ETFs by percentage of allocations according to Cerulli, which said independent RIA advisors forecast 39% of their allocations to be in ETFs, while hybrid RIA advisors expect a 32.7% allocation.

Independent broker-dealers (IBDs), meanwhile, expect to see their allocations near 22%, while wirehouses anticipate sticking close to 20%, according to Cerulli.

Allocation model portfolios play a key role in continued ETF flows.

Cerulli said ETFs have become an important building block of allocation model portfolios, which play a key role in continued ETF flows.

“The industry will continue to see model adoption as wealth manager home offices push advisors toward them – and advisors realize the resulting benefits,” according to Matt Apkarian, Associate Director at Cerulli.

“Given the industry movement toward model portfolios, ETF providers should seek opportunities for placement within proprietary and third-party model portfolios,” he said.

Apkarian added: “We expect the ETF to feature more heavily in model portfolio construction as newer products begin to hit their three- and five-year track records, which are typically required for consideration.”

Jeff Berman, Contributing Editor & Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.

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