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Financial Advisers Like ETFs But Pass on Cryptos

Traders Magazine Online News, June 13, 2018

John D'Antona Jr.

Financial advisors continue to favor exchange-traded funds while ignoring the nascent cryptocurrency markets.

This year marks the fourth consecutive year that ETFs are the preferred investment vehicle among advisers, with 87 percent of financial advisers surveyed currently using or recommending ETFs with their clients—the most popular investment vehicle among 20 options, according to a new survey by the Financial Planning Association (FPA), the Journal of Financial Planning, and the FPA Research and Practice Institute.

The survey was based on findings from Certified Financial Planners and professionals with  half of those  working as an independent IAR/RIA.

 ETF usage has continued to climb over the last eight years when survey respondents first showed a significant jump in usage, with 72 percent using/recommending them in 2010 compared to just 44 percent in 2008.

The 2018 Trends in Investing Survey also showed that advisers continue to prefer a blend of active and passive management style (65%), which has been a consistent trend over the past five years. However, advisers are now showing a slightly higher preference for a purely passive approach moving from 15 percent of advisers in 2017 to 22 percent in 2018 who said a passive approach provides the best overall investment performance considering costs associated with each (active, passive, and a blend of the two) management style.

“With only 200 active ETFs out a universe of nearly 5,000, the continued rise in advisers’ use of this investment vehicle is clearly congruent with the uptick in their adoption of a purely passive approach to investing,” said Dave Yeske, DBA, CFP, managing director of Yeske Buie and practitioner editor of the Journal of Financial Planning. “And while 65 percent of advisers continue to favor a blend of active and passive approaches, these results suggest that the ratio may be shifting in favor of passive.”

The 2018 survey, which was fielded online in April and May of 2018 and received 265 responses by financial advisers of various backgrounds and business models, also indicated that 46 percent of advisers plan to increase their use or recommendation of ETFs with clients over the next 12 months – down slightly from 50 percent in 2017. No other investment vehicle showed this level of anticipated increased usage. For example, 19 percent plan to increase use of mutual funds (non-wrap) and 19 percent plan to increase use of individual stocks.

While ETFs continue to dominate among financial advisers, cryptocurrencies are proving to be one of the least used investment vehicles. Although 53 percent of advisers are responding to client questions about cryptocurrencies, only one-percent of advisers are using/recommending these investments. This low usage is likely to continue as only two-percent say they will increase their usage/recommendation of cryptocurrencies over the next 12 months.

When asked what they think of cryptocurrencies as an investment, just two-percent of advisers said they are a viable investment option that has a place in a portfolio. Twenty-four percent consider them a “gamble; only worth investing money you can stand to lose”; 29 percent consider them an “interesting concept to keep an eye on, but not invest in yet”; 18 percent say they are a “fad that is best avoided”; and 26 percent say they are “not a viable investment option.”

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