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ETFs and index funds account for 85 per cent of net new assets for third-party channels


The use of passive investment products, exchange traded funds and index funds hit an all-time highs in 2016, driven by third-party distribution channel sales from broker-dealers (B/D), registered investment advisers (RIAs) and banks.

These channels represent almost USD10.5 trillion in long-term funds and ETFs tracked by Broadridge Financial Solutions, via its Fund Distribution Intelligence.
For 2016, more than USD610 billion, or 85 per cent, of the USD724 billion of net new asset flows through third-party channels went into index funds or passive ETFs.
Adviser driven channels – independent broker-dealers, wirehouse firms, RIAs and discount brokerage firms – saw almost 82 per cent of net new assets flow into passive funds and ETFs.
Institutional third-party channels – banks, private banks and trust departments – had 90 per cent of net new flows into passive products.
"The move to lower fee products by fee based advisors and banks continues to drive the growth of passive products, with index funds representing 28 per cent of net new flows and passive ETFs 57 per cent of new flows," says Frank Polefrone, senior vice president of Broadridge's data and analytics business. "This shift is impacting both distributors and fund manufacturers, resulting in changes to distributor's product menus, development of new 'clean share classes' by active fund managers, and a broader use of ETFs for advisor managed portfolios.
"Fund firms with a wide selection of both active and passive products will continue to have success. Active managers with unique products will also stand out and continue attracting assets."
Third-party channels now have a higher percentage of passive products than passive products across all funds. They have 36.3 per cent of assets in passive products, up from 32.6 per cent just a year ago. This is compared to overall fund assets (excluding money market funds), which shows 30 per cent in passive products. The increase of passive products for third-party channels is driven to a large degree by advisor's adoption of ETFs as a primary investment vehicle for client portfolios, and the use of ETFs for robo-advisors. In the last five years, passive products distributed by third-party channels has grown from a little over a quarter in 2012 (26.9 per cent) to over a third in 2016 (36.3 per cent).  
For 2016, overall net new assets for ETFs increased by USD405 billion, or 18.4 per cent to USD2.6 trillion. The largest increase for 2016 occurred in the RIA channel, with net new assets of USD116 billion, up 20 per cent. Net new assets for mutual funds were also up in the RIA market, with net new fund assets of USD41 billion, or 2.6 per cent for total fund assets of USD1.64 trillion. The RIA channel is the largest retail channel with combined fund and ETF assets of USD2.33 trillion. The independent broker dealer (IBD) channel is slightly behind with USD2.29 trillion, but with fewer assets in ETFs (USD514 billion) and more in funds (USD1.78 trillion).

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