ETFs are winning the battle for RIA assets, according to a new survey by TD Ameritrade.
More than half (55%) of 300 RIA firms surveyed by TD said that they now used ETFs more than individual stocks or mutual funds when investing client assets.
The research found that 17% of firms did not use mutual funds at all.
The top reasons advisors liked to use ETFs were asset allocation, lower costs and liquidity, with almost three-quarters citing asset allocation as the driving factor, the survey found.
According to TD's research, the choice of a particular ETF, however, was not due as much to its performance and cost as it was to the design of the underlying index.
ETFs win out over stocks and mutual funds
A third of the advisors surveyed said they would fund new ETF purchases from cash, and just over a quarter (27%) said it would come from the sale of mutual funds. It was not likely to come from selling stocks: Only 9% said the sale of individual securities would fund new ETF investments.
The survey also revealed that most RIAs do not buy or switch ETFs simply because new offerings have been introduced by a particular sponsor. Instead, advisors said their choices were determined by asset allocation strategies or lower costs.
Cash funds new ETF buys
The survey also asked RIAs about their allocation calls for 2018 and average client portfolios.
Equities make up 62% of the average client portfolio, with US large-cap stocks accounting for 49% of that sleeve, US mid-caps 18%, international 19% and US small cap 14%.
Fixed income accounted for just under a quarter of a the average portfolio, with corporate bonds making up almost half (48%) of this allocation, with Treasuries 23%, munis 20% and international debt 9%.
Just under one third of those RIAs surveyed said they were either pessimistic or very pessimistic about the US economy for 2018, with 14% very optimistic and 56% somewhat optimistic. The remainder were neutral.
To read the full survey results, click here.
Asset allocation drives ETF use