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US advisers working with fewer ETF providers, says new report

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US advisers have, for the first time, reported consolidating the number of ETF providers they use – a trend that has been evident for some time in the mutual fund market – driven by product rationalisation at large broker-dealers combined with a growing preference for low-fee providers. 

That’s according to Advisor Brandscape, a Cogent Syndicated study released by Escalent. The report says that mutual fund producers report an average of 8.9 provider relationships, a significant decrease from 9.9 relationships in 2017. ETF producers meanwhile, report working with 4.0 ETF providers on average, down from 4.3 in 2018 and 2017. 

As advisors work with fewer ETF providers and concentrate more of their assets with a primary provider, the report says iShares, Vanguard and State Street Global Advisors are maintaining a wide lead over the rest of the market in use and consideration. In fact, Charles Schwab Investment Management, known for its commission-free ETFs, is the only provider to achieve an increase in the proportion of advisers who have client assets invested with the firm over the past year.

“These findings sound a cautionary note for traditional mutual fund managers getting into the ETF market,” says Meredith Lloyd Rice, vice president at Escalent and author of the report. “A handful of long-established players continue to reign in this category as advisor interest in smart beta and active ETFs is cooling off.”

Amid this increasingly competitive environment, it’s critical that firms address the areas that are most important to advisers. In addition to being seen as a leader in the ETF industry, trust and consistent performance are the most important areas for ETF providers to convey. While few firms distinguish themselves as ETF leaders, a number of managers known for their active mutual funds earn relatively strong ratings for trust.

“Firms looking to launch ETFs will need to find the right fit to distinguish themselves,” says Linda York, senior vice president at Escalent. “Whether it’s leveraging a certain product or expertise in a specific asset class, there are opportunities for asset managers who’ve built a strong reputation in the market to stand out.”

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