Guest Columnist Andrew Rogers

Why most RIAs bent on launching in-house ETFs should swallow hard and start a mutual fund

Andrew Rogers: Unless they team up with a distribution or sales partner, smaller firms will likely find launching ETFs too big of a financial strain.

BlackRock

Powershares

Gemini Fund Services

Andrew Rogers

A look at the numbers shows that exchange traded funds are starting to move in lockstep with RIAs and vice-versa. RIAs invested $496 billion in ETFs in the 12-month period ended June 30, 2015 – that’s a $78 billion increase compared to the same period the year before. By comparison, the wirehouse channel added 20% fewer ETF assets, or $397 billion in the last year; granted, an amount that was $70 billion greater than its aggregate investment during the same 12-month period the year before, according to Broadridge Financial Solutions. RIAs that manage portfolios and make discretionary investment choices for their clients value ETFs because they provide advisors with easy access to market segments at a cheap price – an especially important factor for RIAs who are compensated on an asset-fee basis. Fee-based advisors appreciate ETFs’ tax efficiency, liquidity and broad exposure at low cost. Conversely, RIAs are a prized channel for ETF-makers like State Street, Invesco, PowerShares, Vanguard Group and BlackRock. ETFs are also a major ingredient in portfolios devised by robo-advisors -- essentially automated RIAs -- for the mass affluent who invest more than 90% of their assets using ETFs.

ETFs

Outsourced investments are one of the fastest-growing categories in the financial advisory world. Perched between
the asset custodian and the financial advisor, these (mostly) turnkey asset management programs can handle all or a 
portion of their investing, technology and fiduciary duties.

Advocates of using these TAMPs point to how it's better for the advisor because it frees up more time to spend with clients and prospects. It's also better for clients because the duties are being handled by specialized professionals who benefit from economies of scale.

Skeptics say that it adds a layer of cost and takes away an element of control from the advisors in executing according to a client's financial plan.

TAMPs

What makes exchange traded funds so great for consumers can cut the other way if you try to compete with BlackRock

Why most RIAs bent on launching in-house ETFs should swallow hard and start a mutual fund

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