Tuesday, 28 March 2023 16:02

Report: Advisors Expected to Drop Mutual Funds for Personalized Products

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According to a recent study, advisors are moving away from revenue-sharing products such as mutual funds and toward products such as ETFs and SMAs due to regulatory pressure and changing investor preferences. In fact, advisor use of mutual funds is expected to decrease by 13% by 2024, according to research by Cerulli Associates. Dennis Gallant, associate director at Boston-based analytics firm ISS told FA-IQ that affluent clients tend to expect products that can be personalized, such as separately managed accounts, and capabilities such as direct indexing could bring that personalization down market” Iraklis Kourtidis, co-founder and chief executive officer at Rowboat Advisors, a direct indexing provider told the magazine that there are three main reasons why custom portfolios are preferential for advisors. He said one is to meet clients’ environmental, social, and governance preferences, “which you can’t do within a fund because it’s one-size-fits-all.” The second reason is tax efficiency, particularly tax-loss harvesting, “which you also can’t do with a big fund where you lump all the money together.” According to Kourtidis, the third “much less talked about” reason is the concept of “completion portfolios.” He said, “If someone has a lot of tech exposure through stock with their employer, for example, you can give people a custom portfolio that offsets that.”

Finsum:According to research by Cerulli Associates, advisors will be moving away from mutual funds and towards ETFs and SMAs due to regulatory pressure and changing investor preferences such as personalization.

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