Financial advisors are generally aware of strategic beta investing but are not confident in their ability to implement it.
That’s the key finding of a survey of FAs by Columbia Threadneedle Investments which shows a wide gap between those advisors with at least some familiarity of smart beta (98%) and those who are confident implementing it in client portfolios (36%).
Just 15% of advisors are talking to clients about strategic beta today but 52% of FAs familiar with strategic beta plan to use it when constructing client portfolios in the coming year.
The top reason for using strategic beta is to enhance a portfolio’s diversity (38%) followed by incorporating factor-based investing (23%) and to leverage active manager insights into a passive product (17%). Lower fees were the reason given by only 4% of respondents.
Knowledge is power
“Practical advisor education remains essential,” said Marc Zeitoun, Head of Strategic Beta at Columbia Threadneedle Investments. “The best investment solutions won’t help anyone achieve financial success if they aren’t implemented effectively."
The poll also found that just 18% of FAs can name some or all of the portfolio managers of ETFs they use compared to 27% for actively managed funds they use for client portfolios.
“We believe it’s important for advisors to scrutinize passive investments that they are considering for their clients. Advisors need to look under the hood and see who is creating the rules and on whose investment experience they are relying,” added Zeitoun. “We don’t think investors appreciate the unintended consequences of investing in certain benchmark passive strategies. Just because a fund tracks an index doesn’t mean we shouldn’t take the time to understand how securities in the index are selected.”
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