ETFs played role in robo growth, fee-based shift: report

The popularity of ETFs has contributed to the growth of robo-advisors and the shift to fee-based investing, according to a new report from BMO Global Asset Management.

On Monday, the firm released a report to mark 10 years since launching its first ETFs in 2009. The report highlights 10 trends in the ETF industry.

“The popularity of ETFs across different investor types creates demand for various distribution models rendering ETFs more accessible,” it said.

The report noted that robo-advisors, which currently have more than $7 billion in assets in Canada and an expected annual growth rate of 35%, have been a significant distribution channel for ETFs.

But the advisor channel has as well, particularly in the area of fee-based investing, which has overtaken commission-based investing and now accounts for 73% of assets. The second phase of the client relationship model (CRM2), which mandated the disclosure of service fees in client statements, helped increase ETFs’ popularity with advisors, BMO GAM noted.

“ETFs have been helpful in this regard, as they do not include embedded fee for advice, allowing advisors to establish individualized fee agreements with their clients,” the report said.

The report also commented on a variety of other trends in the ETF market, including the emergence of ETFs that combine active and passive strategies, making it possible for them to outperform the market.

“Using institutional investing techniques such as core and satellite investing, active and passive can be blended to create a more effective portfolio,” it said.

“Investors can use a passive, low cost core in developed markets and complement the portfolio with active satellites in less efficient markets where active management can make a difference. Likewise, investors can use an active core with managers they trust and use passive solutions to add market exposures in areas where they have less expertise.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.