Advisers Say ETFs Have Room to Grow in 401(k)s

June 10, 2008 ( - Advisers appear to see a bright future for exchange-traded funds, or ETFs, at least according to a survey sponsored by a major ETF provider.

State Street Global Advisors (SSgA), the investment management arm of State Street Corporation Knowledge@Wharton, the online business journal of The Wharton School at the University of Pennsylvania, note that two-thirds of 840 investment professionals surveyed identified exchange-traded funds (ETFs) as the most innovative investment vehicle of the last two decades.  

And – asked about the greatest potential growth arena for ETFs, 43% of advisors surveyed cited 401(k) plans.  

The top five most appealing characteristics of ETFs, as ranked by financial advisors include:

  • Low cost;
  • Liquidity;
  • Intraday trading;
  • Tax efficiency; and
  • Investment style purity.

When asked about the greatest disadvantages of ETFs, 69% of the advisors surveyed cited their, “unknown/untested indexes and/or portfolio methodologies” or the, “overwhelming number of choices.”    

Additional Findings

Additional survey findings include:

  • Roughly three-quarters (76%) believe the use of ETFs encourages fee-based models.
  • Some 60% of respondents said they knew what exchange traded notes (ETNs) are, and 29% indicated that they plan on increasing their use of ETNs in the future.
  • Only 31 percent of advisors are currently using inverse ETFs, which allow investors to bet against a market index.   However, nearly 40% report that they plan to increase their use of inverse ETFs in the future.

A report featuring the findings of this joint survey titled, The Impact of Exchange Traded Products on the Financial Advisory Industry is available to financial professionals registered