Summary

After a long run-up in equity markets and given low yields, advisors are focused on risk management—and specifically ensuring that clients avoid a permanent impairment of capital. Strategic asset allocations are increasingly important to these advisors, and they become less likely to make meaningful “tactical” shifts. Cerulli’s research finds that advisors may not be fully appreciative of the active nature of some of their decisions, and that their ETF use may be overly reliant on their trust in a couple of the largest firms. Cerulli believes that advisors have the opportunity to expand product use to access more thoughtful exposures in a capital-efficient manner.

Our Key Findings

• Advisors are increasingly risk-focused and place the most emphasis on their strategic asset allocation.
  
  
• Strategic asset allocations are developed based on a mosaic of information, including home-office and third-party models as well as newspapers and trade publications.
  
  
• It’s likely that advisors underestimate the active decisions that go into developing their strategic allocations. Despite stating they are not seeking alpha, advisors use factors, sectors, and international allocations to express views.
  
  
• Advisors are most likely to use inexpensive ETFs from a few of the most trusted brands to build a portfolio core, and they are cautious about using fixed-income ETFs and newer, non-passive ETF offerings due to liquidity considerations.
  
  
• It’s possible that advisors’ reliance on models, over-reliance on select brands, and liquidity concerns may be leading them to overlook more tailored ETF products.