Fund firm reputation is top-of-mind when advisors opt to use actively managed funds, according to a recent report published by the Fuse Research Network.

Pat Newcomb Fuse Research Network Director of BenchMark Research

53 percent of advisors said that firm reputation is "very important" or "somewhat important" when choosing an active strategy, up from 46 percent in 2015. Expense ratio came in at 53 percent as well, up from 50 percent last year. Coming in third was portfolio manager/team tenure.

Though expense ratio remains key, other metric-driven characteristics seem to be less convincing to advisors. Alpha was only considered "very important" or "somewhat important" by 42 percent of advisors, earning it a ninth place ranking. Firm AUM and portfolio concentration didn't even break the top ten most relevant for advisors.

These results are in line with what Pat Newcomb, director of benchmark research at Fuse, has been hearing from advisors across the industry.

"There's a lot more emphasis being placed on the firm's overall image and brand," Newcomb tells MFWire. "A third of advisors have more than half their fund assets concentrated at the top three firms."

When looking at product types, ETFs were the rising stars of 2016. Though mutual funds are still the preferred vehicle by far, 27 percent of advisors indicated that they use ETFs as a meaningful (40-50 percent of client assets) or significant (over 75 percent of client assets) portion of their client assets. This reflects a 5 percent surge in use over 2015, and catapulted ETFs into the top three most used vehicles in every channel. Wirehouse adoption in particular rose by more than 17 percentage points, which is likely the result of the move from commission to fee-based accounts in the channel.

Fuse predicts that the full implementation of the DoL regulations in 2017 will cause the ETF craze to continue. However, given comments by the incoming administration, the future of the reg has become less clear.

The report, Product Usage: The Advisor View, released in November, covers a variety of other topics, including expected changes in asset classes and reasons for using index offerings. The results are cut by "distribution channel, practice type, age, years in the advisory business and assets under management."

 

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