Financial advisors anticipate holding more client assets in ETFs than mutual funds by 2026, marking a first, according to Cerulli Associates. This shift is attributed to ETFs' advantages in taxes, fees, transparency, and liquidity. ETFs are projected to become the most favored investment vehicle for wealth managers, surpassing individual stocks, bonds, cash accounts, and annuities.
Financial advisors expect to hold more client assets in exchange-traded funds (ETFs) than mutual funds by 2026, for the first time, according to Cerulli Associates. ETFs generally have certain advantages over mutual funds relative to taxes, fees, transparency and liquidity, experts said. However, advisors estimate that a larger share of client assets (25.4%) will be invested in ETFs in 2026 relative to the share of client assets in mutual funds (24%), according to Cerulli.
If that happens, ETFs would be the 'most heavily allocated product vehicle for wealth managers,' beating out individual stocks and bonds, cash accounts, annuities and other types of investments, according to Cerulli. ETFs and mutual funds are similar. They're essentially a legal structure that allows investors to diversify their assets across many different securities like stocks and bonds. While that's about half the roughly $20 trillion in mutual funds, ETFs have steadily eroded mutual funds' market share since debuting in the early 1990s. 'ETFs have been attractive for investors for a long time,' said Jared Woodard, an investment and ETF strategist at Bank of America Securities. 'There are tax advantages, the expenses are a bit lower and people like the liquidity and transparency.' Specifically, mutual fund managers generate capital gains within the fund when they buy and sell securities. That tax obligation then gets passed along each year to all the fund shareholders. However, the ETF structure lets most managers trade stocks and bonds without creating a taxable event. In 2023, 4% of ETFs had capital gains distributions, versus 65% of mutual funds, said Bryan Armour, director of passive strategies research for North America at Morningstar and editor of its ETFInvestor newsletterOf course, ETF and mutual fund investors are both subject to capital gains taxes on investment profits when they eventually sell their holdin
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