Advisors More Open to Active Management

After a precipitous downturn in the market, registered investment advisors say they are leaning more toward considering active management, according to new survey results. 

Conducted by Ignites Research among 125 advisors between July 7 and July 15, two-thirds (66%) of respondents said they are more inclined to consider an active manager now than they eere previously. And advisors who are newer to the field were more likely to consider active managers than more seasoned practitioners, the survey found. 

Ignites Research member Alana Pipe explains that advocates of active management have argued for years that when the bull market ceases, investor interest in such products will pick up. Now that the country is in bear-market territory, the organization decided to ask advisors about their stance on active management. 

According to the research, 86% of those advisors with less than 5 years of experience and for those with 5 to 10 years of experience said they would consider active. This compares to 44% of advisors with 10 to 20 years of experience and 67% for advisors with 20 or more years of experience. 

Vehicles of Choice

When it comes to the vehicle of choice, the survey found that 66% of advisors overall are most likely to consider mutual funds. And that’s despite actively managed mutual funds seeing assets decline by 21% between the close of 2021 and June 30, according to data by Morningstar, as reported by Ignites.

Less-tenured advisors, however, are most open to considering ETFs for active access, the research shows. In fact, 100% of respondents with less than 5 years of experience said they would consider actively managed ETFs, Pipe notes. In contrast, only 58% of respondents with more than 20 years of experience said they would probably look at products in that wrapper.

Meanwhile, about 4 in 10 respondents (41%) who were open to active managers overall said they are likely to consider separately managed accounts (SMAs) as a means of incorporating active strategies into their portfolios. Only 20% said they are likely to consider third-party models, the research shows. 

By channel, the results reveal that insurance channel respondents were particularly enthusiastic about mutual funds. In fact 83% of advisors in that category who are considering active managers said they are likely to employ mutual funds, compared with 58% who said they would consider ETFs. In comparison, 72% percent of RIA respondents said they would consider mutual funds, compared with 68% who would turn to ETF options.

Overall, ETFs were a close second choice among advisors considering active managers, with 65% of those considering employing them when choosing active strategies, the research shows. That comes as managers traditionally focused on active management continue to roll out active ETF suites, Pipe notes. 

Of those considering active managers, 44% of the RIA channel were likely to consider SMAs, compared with 43% of the national broker-dealer and wirehouse channel and 42% of the insurance channel.

Not Everyone is on Board

The bear market has not prompted everyone to consider allocating to active. A third of respondents surveyed expressed a general lack of confidence in active managers. When asked why, the most common reason came down to autonomy, Pipe notes. Nearly half (47%) of active-management skeptics said, “I prefer to build and manage portfolios myself.”

Meanwhile, 44% expressed a lack of faith in active managers’ ability to perform. Overall, 28% of advisors avoiding active cited cost as the primary deterrent.

Only 7% of respondents pointed to end investors’ opinions as a reason to steer clear because “clients simply don’t want to hear about them or trust them,” the research shows.

The survey results are reported here (subscriber-only content).