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by Mike Moody

Advisors just can't keep their hands off ETFs. And what's not to like? Tax efficiency is high and fees are low. According to a recent story at ETF Trends, there is another reason advisors like ETFs.

The higher adoption of ETFs among wirehouses and registered investment advisors is "likely due to an increased reliance on asset-based fees in these channels," Cogent said.

More and more advisors are managing fee-based accounts directly. They need access to smart beta (like PDP, and its cousins PIZ and PIE) and they can utilize ETFs for tactical exposure to a wide variety of asset classes. (Or they can use ETF funds like DWAFX or DWTFX if they want it handled for them.) ETFs are a remarkably flexible tool.

The article goes on to suggest that ETFs will capture 20% of new investment dollars next year. ETFs are now used by 2/3 of advisors, whereas less than half used them five years ago.

One thing to keep in mind: as a general rule, the more granular the investment option, the better the performance. When testing relative strength models, for example, we find better performance with individual stocks than with ETFs. Of course, the better performance is accompanied by an extra dose of volatility. Some advisors may willingly trade away the better performance for reduced volatility, but others might be better served with a mix of asset types. For most advisors, this is probably a client-by-client decision. As always, investors willing to deal with volatility usually end up with more money at the end.

Source: ETFs On The Rise