New Study Examines How RIAs Select Actively Managed U.S. Equity Funds

BOSTON, MA. August 21, 2017. A new study reveals how large registered investment advisors (RIAs) select actively managed U.S. equity mutual funds. Among its key findings were that advisors are relatively insensitive to expense ratios on those funds – and that most fund companies should not be pressured to reduce fees. The study also found that wholesalers have little influence getting advisors to select their funds.

The study was conducted in July by Advisor Perspectives, a Boston-based publisher of newsletters and research for advisors. Advisor Perspectives conducted the study as an online focus group on APViewpoint, its on-line community that has nearly 17,000 advisors as members. Advisor Perspectives also launched a program for fund companies and other firms to sponsor APViewpoint.

“Fund companies have been under increasing pressure to reduce expense ratios in response to the flow of assets from active to passive products,” said Robert Huebscher, Advisor Perspectives’ CEO. “This study provides timely empirical data that most advisors don’t set unrealistically low limits on expense ratios and, in some cases, those limits are 2% or greater.”

Huebscher said fund companies are unlikely to gain a large enough competitive advantage from lowering fees to offset the concurrent loss of revenue and profits.

The study also showed that 70% of advisors believe that clients are not protected on the downside by passive funds. “No question in our online focus group generated as uniform a response as this question,” Huebscher said.

These findings have implications for traditional index funds (TIFs) and ETFs, according to Huebscher, in that it identifies the marketing and messaging that will resonate most strongly with large RIAs.

Nearly half of the respondents reacted negatively to interactions with wholesalers, the study found. Panelists were asked, “How much influence do product representatives have in your decision-making process for recommending actively managed U.S. equity funds?” and 70% answered “very little” or “none.”

The results of the study were presented in a webinar to fund companies on August 16 and in a full, 80-page report of its findings.

Advisor Perspectives also announced the launch of a program where fund companies, ETF sponsors, custodians and other firms can become sponsors of APViewpoint. The program includes ongoing research from Advisor Perspectives and the ability for sponsors to conduct their own focus-group research with precisely targeted panels of RIAs and brokers.

For more information, contact Advisor Perspectives at 781 376 0050 or email [email protected].

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