Why are Brokerages Still Playing Catch-up?
First in Line
What’s the reason certain groups are late to adopt trends? Most early adopters tend to be the most successful, see the biggest upside or make the most money, or all of the above. Investing is no different. As the market has shifted to putting the power into the hands of individuals, methods of investment have evolved to keep up. From E-Trade to Robinhood, tech has made individuals more savvy investors and more active.
And as the shift in what you can invest in has also changed, old-fashioned money managers are finding themselves behind the 8-ball. One reason for this is that pushing products for their own firm is no longer what people want, nor does it typically yield the best returns, especially when the fees are high. 45% of independent investment advisors have client’s money in passive index funds, yet advisors at the big four brokerages have just 29%. Why the lag?
Stuck in the Past
Advisors at large brokerages are still finding their way with how widely they should use ETFs, meaning whether a half dozen or so ETFs could create a diversified-enough portfolio. But, as we talked about in a previous blog, ETFs are catching up to and likely about to surpass “active” investing. So more advisors need to get on board.
One thing we know for sure is the cost to invest in ETFs is typically favorable. While there are certainly advisors who have gotten that memo, and hence including a lot of ETFs in their client’s portfolios, it’s obvious from those percentages that many have not.
We continue to feel that ETFs should have a growing, if not dominant presence in one’s portfolio. Said another way, with the low cost structure, intraday price discovery and tax advantages together creating a compelling case, why shouldn’t it be more dominant in most advisors’ thinking?
Seek and Ye Shall Find
One reason for the lag could be lack of knowledge and understanding in how to efficiently research ETFs. While every advisor is versed in stocks, mutual funds, bonds and other traditional investment options, ETFs are still the new kids on the block. And right now, many people don’t know how to find their house and ask them to come over and play.
Obviously we understand this piece all too well, which is why we created Threadvest in the first place. As financial professionals, we saw the value in ETFs and heard this very complaint from clients and colleagues, so we knew it was important to allow people to be able to easily search and find ETFs based on their interests.
But searching is the first step. Unless the pricing and commission structure changes (and we have no doubt it will), advisors will continue to push their own brokerage’s products. But market demand is speaking pretty loudly these days, so it’s only a matter of time before we hopefully all get the memo. Perhaps you should start searching now? It’s your money. Seek your own ETFs and reap the advantages they can offer. Don’t wait.