Come on, wealth managers! Don’t you want to speculate once in a while? Maybe pick one of those high-flying meme stocks, or even a Magnificent 7 member, and just let it ride?
No?
Fine! Just put your client funds into an ETF then.
The exchange-traded fund (ETF) market has surpassed $11 trillion, driven by a strong equity market and solid organic growth, with $511 billion in inflows during the first half of 2025, according to the latest Cerulli report. Furthermore, advisors increasing existing allocations to ETFs has been a major factor contributing to ETF asset growth, with 52 percent of asset managers considering it a major driver and 48 percent saying it is somewhat of a driver.
In 2024, advisors allocated 21.6 percent to ETFs, up from a mere 11.2 percent a decade earlier, in 2015. The Cerulli study noted the growth of the ETF has come at the expense of two other investing vehicles: mutual funds and individual securities.
And the move toward ETFs is far from over. Financial advisors expect their ETF allocations to rise to 25.5 percent in 2026, a higher percentage than their projected allocation to mutual funds for the first time.
“ETFs have numerous advantages over individual stocks − namely, exceedingly low-cost diversification, combined with significant tax advantages for longer term investors,” says Rick Wedell, chief investment officer at RFG Advisory. “In today’s marketplace, you can access low-cost active or passive ETF structures with internal expense ratios in the 20s or lower. That’s 0.2 percent to get access to hundreds of individual stocks, in some cases that are being actively managed by a strategist.”
From a fiduciary perspective, Bryan Bibbo, president and CFO of JL Smith Holistic Wealth Management, believes ETFs make it easier to construct tax-efficient, balanced portfolios that align with a client’s time horizon and risk profile.
“We tend to use core ETFs that track broad indices like the S&P 500, quality dividend ETFs, and sector-specific funds for tactical tilts. We also use fixed-income ETFs for liquidity management within our ‘soon’ and ‘later’ buckets,” Bibbo says.
Alas, sooner or later ETFs will dominate client portfolios. But what about the smiles that come with picking a winner?
As the great market-watcher Robert Plant once asked during a performance of “Stairway to Heaven,” about the bubblish good times: “Does anybody remember laughter?” Or just the unfortunate aftermath?
To be clear, there is still a growing market for single stock picking among advisory clients. But it’s generally limited to high-net-worth investors and is not of the speculative variety.
ETFs offer a fast, tax-efficient way to get diversified exposure, which often appeals to mass affluent investors and advisors who value simplicity and scale. However, high-net-worth investors are increasingly leaning into direct indexing, using individual stocks to build tailored portfolios that reflect their views, specific constraints, and, crucially, tax management strategies.
“Our UMA structure and direct indexing partnerships are helping bring this level of customization to scale,” says Jen Wing, chief investment officer and head of investment solutions at GeoWealth.
Similarly, Dave Alison, president of Prosperity Capital Advisors, prefers using individual stocks through a diversified separately managed account (SMA) when managing post-tax, or non-qualified, money. This approach allows him to take advantage of daily tax-loss harvesting opportunities, which aren’t possible in a packaged product like an ETF.
“By realizing losses and offsetting gains throughout the year, we can improve after-tax returns and enhance overall tax efficiency. In this sense, individual stocks can actually offer more flexibility and control than ETFs for certain taxable portfolios,” Alison says.
Similarly, Stephen Tuckwood, director of investments at Modern Wealth Management, prefers to allocate to broad-based asset-class and sector-level ETFs. He turns to individual stocks when taxes are a top priority and where implementing a direct indexing strategy makes sense.
“With individual stocks, the client owns their own cost basis in each individual position, often with multiple lots per position. Since the client is not sharing an investment vehicle with other investors, their actions can’t impact the client’s journey, and we can provide more precise tax forecasts,” Tuckwood says.
Yeah, direct indexing may be great for wealthy folks who can afford a massive basket of individual stocks. But it still doesn’t offer the thrill of buying Oklo at $20 in January 2025 and watching it fly to $175 in October. Who cares that the nuclear microreactor manufacturer lost $74 million last year? It went up, right?
RFG’s Wedell contends the concept of speculating with client assets is not truly his job as a fiduciary. In his view, most client assets that he manages are in the context of a relatively complex financial plan, and ultimately it’s the machine that makes the decisions in the form of a Monte Carlo simulation.
“That simulation breaks down if you start speculating – because now the client’s investment performance doesn’t really behave in the way the simulation expects,” Wedell says. “The simulation is looking for you to own a broadly diversified portfolio, not a single stock. Which means, if you own a concentrated portfolio, you’ve probably shot the mathematical underpinnings of your financial plan straight into the garbage can.”.
For some clients, Prosperity Capital’s Alison may carve out a small portion – typically 5 to 10 percent of the portfolio – for more speculative assets, knowing the goal is to potentially hit a home run while fully accepting the possibility of striking out.
“There are plenty of well-run, fundamentally sound companies that may experience volatility but don’t necessarily carry high speculative risk. When we look at alternative asset classes like cryptocurrency or options, the speculation level increases, and we treat those exposures very differently,” Alison says.
JL Smith’s Bibbo, for one, views speculation as “entertainment capital, not investment capital.” For most clients, he keeps that at 5 percent or less of their total portfolio, and only if their long-term financial plan is fully funded. Furthermore, these are not recommendations we make, but rather situations where a client expresses personal interest in a specific company, trend, or sector.
“In those cases, it’s usually well-known innovation or technology names – companies tied to AI, clean energy, or biotech. We make sure clients understand those dollars are ‘venture’ money, not retirement income, and that disciplined diversification remains the foundation of their overall strategy,” Bibbo says.
Or clients can simply take that speculative behavior elsewhere.
Todd Rabold, investment management partner with Callan Family Office, refuses to speculate with stocks in client portfolios.
“If a client wishes to speculate on a stock outside of the confines of their personal investment plan, we suggest they have a play account at a discount brokerage to do so,” Rabold says.
Okay, enough already. We get the picture. ETFs will be the preferred vehicle for financial advisors from here on in, except for those really rich folks who can afford to direct index. Other than that, maybe some wealth managers will tolerate a tiny percentage of individual stocks in a client portfolio, as long as it doesn’t mess up the overall allocation.
But what about the fun of picking winners on a hunch, or a tip from a neighbor? Won’t wealth managers miss that when the machines and ETFs totally take over?
“I was an analyst at a large firm on the credit side for many years, where it was 100 percent my job to pick winners and losers for the fund in an actively managed portfolio. I will certainly admit that picking individual securities can be fun. However, in my role as chief investment officer for a large RIA, selecting individual securities really isn’t in my job description,” Wedell says.
“I personally did stock speculation in the 90s, and looking back on it, it took too much time and emotion to do, and now I am invested across the same investments as we utilize for our clients. Broad diversification requires less time and effort than individual stock selection,” says Daniel Lash, certified financial planner at VLP Financial Advisors.
Says Bibbo: “The thrill of picking the next winner is always tempting, but we’ve found that ‘boring’ often wins the race. Real wealth is built through patience, planning, and discipline, not adrenaline. The fun part for us is helping clients see the plan work in real time: steady growth, sustainable income, and peace of mind that lasts longer than any meme stock rally.”
As for Alison: “Human nature naturally drives FOMO – the fear of missing out – especially when we see certain stocks posting exponential returns like we’ve witnessed in recent years. But as we all know, it’s incredibly difficult to predict which companies will deliver those outsized gains and which will not. There are far more losers than winners when it comes to stock speculation.”
Finally, Callan’s Rabold replied, “I do not miss the ‘fun’ of speculation as it often ends badly. Look at Beyond Meat’s trading the past two weeks, it went from 70 cents to $7 to $2.”
Yeah. Maybe that’s not much fun at all.
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