Retail investors now piling into ETFs, says Schwab

Over the last six months, The Charles Schwab Corp. has seen flows from individual investors in exchange-traded funds surpass flows from registered investment advisers, marking the first time ever this has happened. Overall, the ratio of ETF assets held between advisers and investors is 50-50, Peter Crawford, senior vice president of investment management services at Schwab, said in an interview at Schwab's Impact conference, which is being held in Boston this week. “Registered investment advisers are early adopters,” Mr. Crawford said. But now that investors have a better sense of what ETFs are, they are more comfortable investing in them, he said. Schwab will divulge the actual amount individual investors are investing in ETFs next month, said Alison Wertheim, a spokeswoman. Even though more investors are directly using ETFs, it doesn't mean that less advisers are doing so, Mr. Crawford said. “Ninety percent of adviser clients use ETFs, compared to 17% of Schwab's individual investor clients.” Twenty-five percent of advisers surveyed by Schwab in July said they planned to use more ETFs over the following six months. Advisers currently are the primary type of investor in Schwab's proprietary ETFs, which came to market at the end of last year. Close to 40% of Schwab ETFs are owned by registered investment advisers. That figure has grown greatly over the past few months, Mr. Crawford added. To cater to both investors' and advisers' needs, Schwab is discussing expanding its ETF offerings. The firm has filed with the Securities and Exchange Commission to launch a mid-cap and a real estate investment trust ETF. Management at the online brokerage is also discussing launching a total-bond ETF or some type of broader-market-bond ETF that is tied to the credit markets, Mr. Crawford said. “That's where we hear demand from advisers,” he said. Schwab launched three fixed-income ETFs in August, and those portfolios now have $120 million in assets. Schwab has no timetable for when it will file to launch another fixed-income ETF.