More ETFs, more opportunity, more homework

More ETFs, more opportunity, more homework
The democratization of ETFs cuts both ways
SEP 24, 2026

One of the big things that emerged from my meetings with industry leaders at the Exchange ETF conference in Las Vegas earlier this year was the impact that the asset class, and its current explosion, is having on advisors.

Scott Davis, head of ETFs at investment management giant Capital Group, told me that the tax-efficient nature of the asset class can help free up advisors’ time and even boost succession planning when onboarding new ETF-focused advisors.

Certainly, the ETF market has exploded in recent years. Data released recently by Cerulli Associates said that there were 2,692 ETFs in the marketplace in 2021, a figure that had ballooned to nearly 5,000 ETF strategies by the end of 2025. Within that number, active ETFs continue to skyrocket – there were 953 strategies launched last year, accounting for 84% of all new ETFs. For context, that number exceeds the 797 ETFs launched in 2021. It also dwarfs the 308 active strategies introduced that same year.

Advisors should be paying close attention to this trend – research released last year by Capital Group found that active ETFs could serve as a client acquisition magnet for advisors looking to attract Gen X, millennial, and Gen Z clients. This trend was also in evidence at the Exchange conference, where Megan Rust, vice president of ETF capital markets at Franklin Templeton, told me that younger investors are likely to fuel the growth in active ETFs, continuing the inexorable rise of the asset class.

Set against this backdrop, active ETFs have seen their market share triple in recent years – the asset class accounted for 12% of the $14.9 trillion US ETF market last year, up from just 4% in 2021, according to data from UMB Fund Services and FUSE Research Network.

“I would say in the last 12 months, maybe 24 months, we’ve seen a dramatic increase in the interest and demand of the active ETFs,” Tim Bonacci, CEO of Luma Financial Technologies, told me during a recent meeting in New York. Indeed, ETF wrappers are enabling large and even medium-sized RIAs to create their own ETFs and offer them to their clients, according to Bonacci. “You don’t have to only go to the biggest names to get it … it’s not just the Goldmans and the Franklins doing it.”

As Bonacci explains, with technology, now you don’t have to have an ETF with half a billion dollars; you can have an ETF with $50 million and still be “very profitable.”

But the democratization of ETFs cuts both ways. The recent data from Cerulli Associates also found that most ETF closures have involved “subscale ETFs” with assets under management of less than $50 million. These did not attract advisor and end-investor interest, according to Cerulli, which notes that, since 2021, more than 85% of ETF closures have occurred in these products, peaking at 92% last year.

While not an impediment to the broader ETF industry, this trend highlights the need for due diligence from advisors. Clearly, they face a widening ETF menu with a shrinking amount of track record to use in evaluating a single fund. More choice is not, by itself, more clarity.

Regulators are paying attention too. On June 30, the SEC opened a 60-day public comment period on ETFs looking to invest in innovative asset classes or engage in novel investment strategies, asking foundational questions about how such funds should be classified and registered. For advisors who’ve spent the last few years fielding pitches for newly launched ETFs, that’s a signal worth watching − not because it will slow the pace of launches but because it suggests the compliance bar for recommending them is about to get more explicit, not less.

None of this diminishes the opportunities that ETFs present to advisors. But the same forces expanding advisors’ toolkits − cheaper access, faster launches, and tax benefits compared to mutual funds − are also expanding their responsibilities. The advisors who benefit most from this boom won’t just be the ones who move fastest into the asset class. They’ll be the ones who keep asking hard questions as the menu keeps growing.

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