ETF MarketPro met with John Meunier, Principal at Cambridge-based Cogent Research to discuss his firm’s findings on ETF investing.
The recently completed study of 4,000 affluent Americans found that interest, usage and commitment to ETFs is significantly higher among self-directed investors who manage their own portfolios. The new study, ETF Investor Brandscape™, looks at brand awareness, product usage, provider loyalty, and customer experience across major ETF providers.
ETFMP: What made you decide to conduct the first deep dive look at the ETF category from the perspective of high net worth investors?
Meunier: Cogent Research is a market research firm specializing in the financial and investment services industries. We provide both syndicated and custom research solutions to industry leaders, including both product manufacturers and distributors. We have seen in our work the dramatic increase in reliance on ETFs over the past three or four years among investors and advisors alike, and recognized that, while currently accounting for only a small fraction of total invested assets, the rise of ETFs has the potential for dramatically altering the product landscape.
In our commitment to understand that landscape, and to provide insights to our business partners, we felt that it was important to provide an in-depth look at this growing category, particularly as it relates to the affluent and high net worth population.
ETFMP: What are some of the entrenched beliefs about ETFs that the study dispels?
Meunier: The main entrenched belief displaced by the study is the perception that advisors alone are responsible for the phenomenal growth of ETFs. Our survey shows that 41% of all ETF dollars currently invested are assets owned by self-directed investors. Furthermore, self-directed investors allocate more of their investment dollars to the category, 15% more in fact.
Even among advised investors, there is good evidence to suggest that a lot of the interest in ETFs is being generated by the investor. Among current ETF owners who have an advisor, one third of the conversations about the product were initiated by the investor. Furthermore, among the sizable portion of advised investors who say they intend to invest in ETFs over the next year, half said their advisor has not talked to them about the product. These investors may very well go elsewhere to learn about and even purchase ETFs in the future, and since a high proportion of them already have online brokerage accounts, there’s a good chance that’s where they’ll go.
ETFMP: Why do you say that there is real ‘home-grown’ passion among investors for ETFs? Any specific examples from the study?
Meunier: I addressed this in my previous answer, but just to add some anecdotal color, it is not uncommon for advisors to report their initial use of ETFs was the result of an investor inquiry. That’s what we mean by “home-grown” passion, as opposed to, say, use of variable annuities, which is a product category that is very much advisor-driven.
ETFMP: Janus recently announced that it is pulling back from direct distribution in favor of distributing through advisors. What can we conclude from comparing that decision in the mutual fund industry to your recommendation that ETF managers pursue a dual distribution strategy?
Meunier: I don’t want to comment on any single firm’s distribution strategy, nor do I mean to imply that we are suggesting every ETF provider run out and set up a portal to distribute their own products directly. All we’re saying is don’t ignore 40% of the market, and do whatever you can to leverage your brand in the increasingly important online brokerage space. On top of that, don’t rely solely on advisors to educate investors about ETFs. Speaking to consumers in ways that don’t jeopardize relationships with intermediaries is not impossible, just look at pharma for example. Much of the market penetration for some of these blockbuster drugs can certainly be attributed to direct-to-consumer advertising.
ETFMP: iShares and Vanguard are fighting for the number one spot in overall customer experience. What are they doing right as compared to their competitors?
Meunier: Not to be glib, but both firms are essentially doing everything right. By that I mean, across about a dozen attributes, or ways that an investor might assess his or her perception of or connection to a particular brand, iShares and Vanguard score best in the four areas that matter most to investors.
ETFMP: Do you plan to repeat the ETF Investor Brandscape(TM) study and, if so, how often?
Meunier: Yes, we plan to track the progress of ETFs on an annual basis. Since our study indicates a potential for the category to double, in terms of market penetration, over the next year alone, we’d be ignoring one of the biggest developments in the industry if we didn’t.
ETFMP: Who should advisors or investment companies contact to learn more about the study?
Meunier: Interested parties should contact Sean Mulkerron by email or by calling 617-715-7641.
ETFMP: Can you tell us a little about your firm and your experience in talking to investors?
Meunier: For over a decade, Cogent Research has been providing custom research solutions for leading financial institutions regarding marketing challenges around product, brand, and strategic communications. These engagements have required both qualitative and quantitative assessments of investors’ attitudes, perceptions, and behaviors on a wide range of topics. Throughout our history, Cogent has been recognized as the go-to research firm for strategic and actionable insights. That’s in part because we employ top-notch researchers and marketing scientists. But in addition, we place tremendous emphasis on maintaining strong industry-based expertise in-house. Combined, these factors deliver powerhouse results for all of our partners.