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Investors driving ETF popularity and growth

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Nearly two thirds of affluent investors who own exchange-traded funds say they purchased these products with no help from an adviser, according to a study by Cogent Research.

Cogent says that in light of this it is not surprising that self-directed investors have higher awareness levels of ETF providers and are more likely to increase their usage in the future.

These and other findings are revealed in the 2010 Investor Brandscape report based upon a survey of 4,000 affluent investors. The study demonstrates how critical self-directed investors are to the continued acceptance and growth of ETFs. It also points to the challenges facing ETF providers that may be overly dependent on advisor-sold product distribution.

“Given the high engagement level of self-directed investors with ETFs, it’s no wonder that providers are now focused on addressing the needs of this important audience,” says Christy White, Cogent Research co-founder and principal.

White points out that one compelling reason for rethinking traditional distribution models is the fact that 40 per cent of current self-directed ETF owners say they plan to increase their use of these products, compared to just 26 per cent of advised ETF owners who expect to do the same.

An unexpected accelerant of the direct distribution model for ETFs is the fact that not only are self-directed investors comfortable buying ETFs, but advised investors also believe they can purchase these products without the assistance of their adviser. Nearly one in four advised investors that currently own ETFs say they bought these products on their own.

Self-directed ETF owners are twice as likely as their advised counterparts to be aware of major ETF providers: 38 per cent on average for self-directed versus 18 per cent on average for advised.

Among the major ETF providers, Vanguard is perhaps best positioned to capitalize on the wave of opportunity among self-directed investors, the report says. While awareness of the firm as an ETF provider is currently lower than that of iShares among self-directed investors, those who recognise Vanguard as an ETF provider view the firm much more favourably than those familiar with any other ETF provider. Furthermore, Vanguard garners significantly higher loyalty from its ETF customers than any other provider.

“Right now, Vanguard is sitting in the cat bird’s seat when it comes to capturing market share among self-directed ETF investors,” says John Meunier, Cogent Research co-founder and principal. “But with big players like Charles Schwab entering the space, and the recent announcement of a strategic distribution agreement between iShares and Fidelity, it’s pretty obvious everybody wants a piece of the action.”

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