RIAs showing increasing favor to ETFs for diversification, lower fees

The US exchange-traded funds industry manages assets of around $11 trillion compared to the $26 trillion of mutual funds, but while mutuals have more than 100 years of history, ETFs only launched in 1993.

And RIAs are becoming increasingly focused on ETFs, frequently pivoting from mutual funds, amid lower fees, tax advantages, flexibility, and transparency according to a new report from RIA and financial advisor intelligence platform AdvizorPro.

The analysis of 13F filings from almost 5000 RIAs reveals that more than two-thirds of RIAs increased their ETF allocations in 2024, with advisors taking an active approach to their management to adapt to market conditions as shown by the high turnover of ETF allocations - over half of ETF positions changed last year.

Diversification is another important aspect of the way advisors are using ETFs, such as for strategic exposure to digital assets, structured income, and hedging strategies including options-based ETFs, where mutual funds struggle to compete.

The number of ETFs per RIA grew by 14% last year, highlighting how firms are spreading their allocations over more funds rather than concentrating on a smaller number.

In a volatile rate environment, multi-sector and ultrashort bond ETFs saw strong inflows, reinforcing ETFs’ role in yield generation and risk mitigation. But the range of funds available grows constantly, for example a crop of ETFs seeking to benefit from the new political reality in the US.

The lower fees offered by ETFs vs. mutual funds is attractive to advisors, both for actively managed and passive funds.

“The rapid expansion of ETF adoption among RIAs reflects the increasing importance of product innovation, liquidity, and risk management in today's market,” said Michael Magnan, co-founder and CEO of AdvizorPro. “The 2025 RIA ETF Trends Report underscores how advisors are diversifying their portfolios, leveraging thematic and alternative investments, and actively managing allocations in response to changing market conditions. ETF issuers that focus on education and differentiated strategies will be best positioned to capture this growing demand.”

The ETF space in the US is dominated by iShares, Vanguard (which recently took the accolade of ‘world’s largest ETF’ from State Street), and SPDR. However, JPMorgan, Dimensional, and WisdomTree are among the providers showing growth for their active and factor-based strategies, while Neos Funds gained almost 124% with its leading position in options-based ETFs.