Discussing ETFs, even when you do not offer any
Investment managers without exchange-traded fund (ETF) portfolios can improve their net assets by acknowledging why ETFs may not be the right investment for advisors to use in client portfolios.
This came to mind earlier this month; The Wall Street Journal wrote about increased ETF use by fee-based advisors (see article). Tom Lydon writes, “For fee-based advisers, ETFs are a perfect tool to dictate asset allocation.” My expertise isn’t to confirm or reject his asset allocation hypothesis, rather consider the implications for selling & marketing mutual funds.
So if the following are true:
- ETFs sales are growing and will continue to do so. (source from 2008)
- ETFs are perfect for asset allocation in a fee-based service. (assumed from above)
- Number of fee-based advisors will grow and commission-based advisors will decline. (Tiburon found a 40% increase in fee-based advisors between 2005-2009)
That raised a question in my mind – do mutual fund providers market against ETFs? ETF providers certainly position themselves against mutual funds. The two ETF titans, iShares and Vanguard, provide entire micro-sites to “why consider ETFs versus mutual funds.” iShares even clarifies tax efficiencies.
My next logical step was to visit the Web sites of top mutual fund firms primarily focused on serving financial advisors. In visiting five Web sites (public sites only), I didn’t see any “why consider our funds versus ETFs?” type language. Why? I may guess:
- Mutual Fund providers do not see ETFs as a reasonable threat.
- Those firms think all advisors know “why.”
- These firms haven’t prioritized answering this question.
Competing against ETFs is increasingly becoming a priority. I can see a well-executed marketing program – promoting mutual funds (passive or active) versus ETFs (supported with Sales efforts) improving a firm’s competitive position and net assets. Today, the media is leading investor communications with reasons to potentially avoid ETFs, such as over-specialization.