Financial advisors appear to be scaling back the number of ETF providers they deal with in a move that is expected to help the largest issuers consolidate their market-leading positions.
Meredith Lloyd Rice, Vice President at Escalent.
In sobering news for new entrants to the ETF market, a survey of over 1,500 investment advisors in the US found that, on average, advisors worked with 4.0 ETF providers in 2019, down from 4.3 in 2018 and 2017.
The findings, which are part of a study conducted by consultancy Escalent, represent the first year that advisors reduced the number of ETF providers they use.
“These findings sound a cautionary note for traditional mutual fund managers getting into the ETF market,” said Meredith Lloyd Rice, Vice President at Escalent and author of the report.
“A handful of long-established players continue to reign in this category as advisor interest in smart beta and active ETFs is cooling off.”
The report found that, as advisors work with fewer ETF providers and concentrate more of their assets with a primary provider, iShares, Vanguard, and State Street Global Advisors have upheld a wide lead over the rest of the market in use and consideration.
Outside of the top three issuers, the report found that Charles Schwab Investment Management was the only top-ten provider to achieve an increase in the proportion of advisors who have client assets invested with the firm over the past year.
Amid this increasingly competitive environment, Escalent notes that new entrants can still achieve success by addressing the areas that are most important to advisors. Apart from being seen as a leader in the ETF industry, trust and consistent performance were rated by advisors as the most important factors when choosing an ETF provider.
“Firms looking to launch ETFs will need to find the right fit to distinguish themselves,” said Linda York, Senior Vice President at Escalent. “Whether it’s leveraging a certain product or expertise in a specific asset class, there are opportunities for asset managers who’ve built a strong reputation in the market to stand out.”
According to the report, the top US ETF providers by market penetration are as follows:
- iShares
- Vanguard
- State Street Global Advisors
- First Trust
- Invesco
- ProShares
- WisdomTree
- Fidelity
- Charles Schwab
- PIMCO