Schwab survey finds most millennials view ETFs as the primary investment vehicle of the future


CHICAGO — Advisors who don’t embrace ETFs will miss out on the next generation of clients.

While only 42% of millennial investors say their portfolios currently hold an ETF, 91% say funds are their investment vehicle of choice, according to Schwab’s annual ETF Investor Study.

“In a decade, we’ve seen ETFs grow to the point where investors now view them as a fundamental investment vehicle,” said Heather Fischer, vice president of ETFs and mutual fund platforms at Schwab. “While [this] the sentiment is particularly pronounced among millennial investors, it is strongly reflected across generations and genders.

Millennials are drawn to ETFs because of their product exposure, says Kari Droller, vice president of third-party mutual funds, ETFs and 529 plans at Schwab.

“They grew up with ETFs,” Droller said at the 30th annual Morningstar Investing Conference in Chicago. that and just more comfortable with ETFs.

The survey polled 1,500 investors between the ages of 25 and 75 with at least $25,000 in investable assets who had recently purchased ETFs. Of these respondents, 29% were referred to ETFs by an advisor. Nearly half (46%) say they have chosen their own.

Millennials are more drawn to ETFs because of their appetite for technology, Droller says. While 25% of all survey respondents say their ETFs are picked up by an automated investing platform or portfolio building tools, 38% of millennials in this group say tech platforms have helped them gain exposure to products.

“We’re seeing a higher proportion of millennials using tech-enabled bots and self-directed portfolio building tools,” says Droller. “A lot of these (tools) use ETFs, so there is an increased exposure of millennials to ETFs.

There is increased interest in these funds beyond the younger generation as well. More than half of all ETF investors expect to increase their investment in funds over the next year. Many (83%) say they invest in ETFs for more flexibility in market fluctuations, with 67% of respondents saying they plan to allocate more to products during periods of volatility. As many as 79% of millennial investors say ETFs will be their primary investment vehicle in the future, up from 63% last year.

ETFs are growing in popularity as distributors begin to take bigger steps to brand and market the products, according to Jim Devaney, head of sales distribution at PGIM Investments.

“I think every advisor is at least fully aware of using ETFs, even with their older generation of clients,” Devaney says. “The big thing that distributors are really working towards is how to make sure they have cross-generational relationships to make sure that when assets are passed on, the advisor has a choice.”

PGIM, the investment management arm of Prudential Financial, went so far as to rebrand from Prudential Investments to reflect the firm’s emphasis on a multi-manager model that includes ETFs. The company launched its first ETF, the PGIM Ultra Short Bond ETF (PULS), in April.

“I don’t think it’s an ETF or a mutual fund (approach) just for the market,” he explains. “I think you’re seeing advisors fully adopting multiple vehicles, even for their older clients.”

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