Assets invested in the global exchange-traded fund (ETF) industry hit an estimated $6.4 trillion at the end of January 2020, which represents massive growth from less than $100 billion in 2000. Wealth advisors and managers are part of the reason why ETFs have grown in popularity—the funds offer low cost, tax-efficiency, asset diversification and scalability. ETFs also resonate with millennials because of their ease of use and inexpensiveness—and wealth managers need to pay attention.
With ETF-driven strategies and models in place, a wealth manager has more opportunity to attract new investors, especially millennials, who don’t generally have fat wallets. If wealth managers don’t attract this demographic now, they’ll lose the opportunity to serve them when their assets grow. An advisor needs some way to compete with cheaper robo-advisory options for millennials, and a good stable of ETF models that provide investment flexibility and lower fees is compelling. It’s also very attractive for wealth managers, as these models tend to rebalance either based on client cash flows or a scheduled frequency, which significantly assists in scaling the onboarding and management process.
This scalability is intrinsic to ETFs’ value to wealth managers, who can grow managed accounts without necessarily having to expand the size of the firm’s investment or operations personnel. ETFs allow the wealth management community to create simplified models to run portfolios more effectively and efficiently, with lower trading costs. Scalability across portfolios is supported by technologies like SS&C Global Wealth Platform (GWP)’s rules-based TIA (tailored investment automation) engine. GWP’s TIA automates and disseminates the rebalancing component of the process for clients across relevant portfolios.
With the right tools, wealth managers and advisors can use ETFs to develop models, build portfolios, manage exposure and attract new clients. (They also help active managers take advantage of tax-loss harvesting while protecting the portfolio’s exposure through an offsetting ETF.) GWP offers the ability to store a strategy, along with a risk score, as created by an advisor, and to look at any unitized product and quickly identify the constituents’ weights. These capabilities help clients create models of ETFs, which can then be used to create portfolios tailored to clients’ needs while helping wealth managers build scale.
ETFs allow wealth managers and advisors to create lighter, cheaper models and reduce trading costs, which in turn enables wealth managers to remain competitive while reacting to marketplace fee compression. Besides the built-in capabilities of GWP, advisors can also tap into third-party insight from ETF Global through the platform for more detail on constituents, geographic exposure and other parameters.
Contact us if you’d like to explore how GWP can help you put the power of ETFs to work for your firm and your clients.
Asset Management, Wealth Management