New research has uncovered a growing trend among financial advisers recommending low-cost exchange-traded funds to their clients, indicating a shift towards more cost-effective investment strategies.

According to recently released data from wholesale trading platform AUSIEX, nearly a third (30.9%) of buying volumes directed by advisers went into ETFs in 2023, marking a significant increase from the quarter seen in 2022.

The adoption of ETFs was particularly pronounced among younger advised investors, with ETFs constituting almost half (49.2%) of buy trades facilitated by advisers for individuals aged between 18-24. This represents a notable 5% uptick from the previous year.

Steady growth

Similarly, for those aged between 25-49, ETFs accounted for more than a quarter (24.7%) of the buying volumes from advisers in 2023, reflecting a steady growth trajectory over the past two years.

Brett Grant, Head of Product, Marketing & Customer Experience at AUSIEX, emphasized the increasing significance of ETFs in advisers’ investment strategies, particularly amid market uncertainty.

“ETFs have become an increasingly important part of advisers’ investment strategies, in part due to market uncertainty,” said Grant. “Today, ETFs continue to offer a diversified, low-cost exposure to an index or specific thematic, allowing advisers and their clients to gain exposure to a range of asset classes in a single transaction.”

Balanced portfolio

Grant highlighted the versatility of ETFs in constructing well-balanced portfolios tailored to individual risk tolerance and financial goals, adding that they present opportunities for advisers to engage with the next generation of investors by aligning investment options with client values.

He outlined three key advantages driving the popularity of ETFs among advisers:

1. Diversification: ETFs enable exposure to various asset classes, investment trends, and regions, facilitating instant diversification for investors.

2. Cost Efficiency: ETFs are known for their low costs compared to managed funds, providing value for clients seeking cost-effective investment solutions.

3. Liquidity and Transparency: ETFs trade on stock exchanges like individual stocks, offering intraday liquidity. The transparent nature of ETF holdings allows advisers to make well-informed investment decisions.

The findings underscore a broader industry shift towards embracing ETFs as a preferred investment vehicle, driven by their affordability, versatility, and potential for portfolio diversification.