Three-quarters of US advisers believe active and passive investments complement each other

Three-quarters of US advisers believe active and passive investments complement each other

More than 80% of financial advisers agree that passive investments help minimize overall portfolio fees and that active managers are ideal for certain asset classes, research by Cerulli Associates, a global research and consulting firm, has found.

“Approximately 75% of advisors agree that active and passive investments complement each other,” said Brendan Powers, senior analyst at Cerulli. “Cerulli argues that the debate of active or passive has shifted to active and passive, with more focus on how to best use both as tools to build more efficient client portfolios.”

“Through Cerulli’s conversations with industry executives, there is a feeling that active and passive will ultimately coexist and assets within each strategy type will eventually reach an equilibrium,” Powers said. “In other words, it’s not a zero-sum game, and instead each will be used where they provide the most benefit.”

“The idea that passive can help reduce overall portfolio costs is a universal theme across all intermediary channels, with each having at least 80% of advisers in agreement,” continued Powers. “This sentiment likely results from increased awareness of fiduciary obligation, adviser migration toward fee-based accounts, and an increased client understanding of fees.”

“In general, active will retain a key role in asset classes where it adds value over passive,” he explained. “Identifying these asset classes in which these advisors are more willing to use an active product remains an essential exercise for asset managers. The asset classes where more than half of advisors prefer actively managed mutual funds include international/global fixed income (61%), multi-asset class (60%), emerging markets fixed income (58%), emerging markets equity (53%), and international/global equity (51%).”

Cerulli’s report, US Product Development 2017: Advisor Product Demand in a Model-Driven Environment, provides tactical data for understanding advisor product use, continued coverage of active versus passive, and advisors’ increased reliance on investment models.

Author spotlight

Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.