Advisors and RIAs Favor ETFs Over Mutual Funds, Preference Hits 60%

Why It Matters

The 60% ETF preference signals a decisive move away from traditional mutual funds, reshaping distribution economics for asset managers. Lower expense ratios and greater tax efficiency of ETFs are driving advisors to recommend them more often, which could accelerate inflows into ETF products and pressure mutual‑fund providers to cut fees or innovate. For RIAs, the shift reinforces a business model built on cost transparency, potentially attracting more fee‑only clients. Meanwhile, wirehouse firms may need to balance the demand for customization with the growing appetite for ETFs, influencing product development and platform integration strategies. If the trend continues, the ETF market could capture a larger share of the $30 trillion U.S. investment‑vehicle pool, altering the competitive landscape for both active and passive managers. Regulators will also watch the shift closely, as the growing dominance of ETFs raises questions about market liquidity, price discovery, and the systemic impact of a more ETF‑centric market structure.

Key Takeaways

• 60% of advisors now choose ETFs over mutual funds, up from 53% in 2022.
• Mutual‑fund selection fell to 10%, half its 2022 level.
• RIAs show the strongest ETF bias at 80%; wirehouses favor SMAs at 60%.
• FUSE survey: 51% prefer standalone ETFs, only 13% favor ETF share classes.
• Mike Evans of FUSE notes advisors still prioritize transparency, liquidity, and simplicity of standalone ETFs.

Pulse Analysis

The latest ISS poll confirms that ETFs have moved from a growth story to a market‑share story. Advisors are no longer testing the waters; they are making ETFs the default wrapper for most client portfolios. This shift is driven by a confluence of fee compression, tax‑efficiency advantages, and the operational simplicity of trading ETFs on exchanges. For asset managers, the implication is clear: product roadmaps must prioritize ETF launches, and legacy mutual‑fund platforms need to be re‑engineered to compete on cost and transparency.

Wirehouse advisors remain the outlier, favoring SMAs because of the high‑net‑worth client base that values bespoke tax management. However, even within that segment, nearly 40% still select ETFs, indicating that the ETF penetration is deep enough to influence even the most customization‑focused channels. The modest interest in ETF share classes suggests that while regulators have opened a new structural avenue, advisors are waiting for clear value propositions—such as lower transaction costs or superior tax treatment—before shifting en masse.

Looking forward, the SEC’s pending guidance on ETF share classes could either unlock a new growth engine for mutual‑fund houses or reaffirm the dominance of standalone ETFs. Asset managers that can bundle the best of both worlds—low‑cost, tax‑efficient structures with the flexibility of share classes—may capture the next wave of advisor interest. Until then, the 60% figure stands as a benchmark for the industry, signaling that ETFs are now the primary vehicle for delivering investment strategies to retail and institutional clients alike.