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US financial advisers poised to allocate assets to active non-transparent ETFs, says Broadridge survey

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A vast majority of financial advisers find the concept of actively managed, non-transparent exchange traded funds (ETFs) appealing, according to new data released today by Broadridge Financial Solutions. 

Actively managed nontransparent ETFs, which recently received SEC approval via Precidian ActiveShares in June 2019, allow fund managers to disclose holdings on a quarterly basis, ultimately keeping holdings more confidential than with traditional transparent ETFs.

The survey reveals that financial advisers are ready to allocate assets to active nontransparent ETFs, with more than four-in-five advisers (83 per cent) currently hoping their favourite active mutual funds become available in a nontransparent ETF structure. These solutions have been referred to within the industry in a variety of additional ways, including: active ETFs, opaque ETFs, nontransparent ETFs and semi-transparent ETFs.

Advisers currently have a low level of awareness of ActiveShares but find the concept and definition of active nontransparent ETFs appealing. Only 4 per cent of advisers report being “very familiar” with ActiveShares, while 37 per cent are entirely not aware and another 37 per cent have heard of the name but know nothing about the technology. Nevertheless, when presented with the concept of active nontransparent ETFs, 85 per cent of advisers stated that they were interested in the concept.

“There is a clear awareness and learning curve among financial advisers given how recently the SEC has approved active nontransparent ETF technology,” says Matthew Schiffman, principal for Distribution Insight, Broadridge Financial Solutions. “What is interesting is the level of comfort advisers already have with the concept of active, opaque ETFs – and how quickly they would plan to allocate assets to these products.”

The adoption timeline for nontransparent ETFs among financial advisers generally correlates with their current awareness levels, with 22 per cent of advisers stating they would use such products within 12 months and an additional 64 per cent stating they would do so after 12 months of introduction to the market. Key influences on an advisor’s confidence in using this type of solution include product performance record (69 per cent), good liquidity/daily trading volume (68 per cent) and asset manager brand strength (55 per cent). advisers’ top concern is that active nontransparent ETFs are too new and untested in the market.

Advisers’ usage expectations are already high, with 85 per cent of advisers stating they are likely to use active nontransparent ETFs and 72 per cent expecting asset managers to introduce funds on the ActiveShares platform. Nearly one in two advisers (46 per cent) foresee allocating new, not-yet-invested assets to nontransparent ETFs, underlining the opportunity for active managers and investors alike. Meanwhile, 63 per cent of advisers foresee active nontransparent ETF assets being re-allocated from actively managed open-end mutual funds.

More than four in five advisers (82 per cent) are interested in learning more about semi-transparent ETFs, and they are most likely to seek product information and education via in-person meetings with wholesalers (49 per cent), followed by email (35 per cent), webinars (27 per cent) discussions with portfolio consultants (27 per cent) and asset manager websites (26 per cent). advisers who are most interested in learning more about active nontransparent ETFs also prefer one-to-one personal discussions over automated digital interactions.

“Active nontransparent ETFs are likely to be additive to the asset management landscape, as the advisers we surveyed expect to allocate entirely new assets as well as assets from other ETFs and passive open-end mutual funds,” adds Schiffman. “Asset managers shouldn’t let this moment pass, as they now have a prime opportunity to further engage with advisers, primarily through wholesalers and other one-to-one channels.”

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