ETFs: An Approaching Paradigm Shift for Wealth Management

ETF Investor recently reprinted an essay entitled "ETFs: An Approaching Paradigm Shift for Wealth Management."  ETF Investor reprinted the essay in its entirety, including accompanying charts.  The introduction reads:

Tyler Mordy, a Research Analyst with Hahn Investment Stewards, wrote an excellent overview of wealth managers’ ‘revolutionary shift’ to ETFs. ETFs’ ‘threat to the typical business model of asset management firms is enormous,’ says Mordy.

The article reviews many of the technological benefits of ETFs as compared to competing investment products, highlights the importance of asset allocation, provides an update on the growth of the ETF market and cites examples of how the enormous benefits of ETFs represent a threat to the typical business model of asset management firms.   

The impact of technology on the business model of asset management firms continues to evolve.  We have seen its greatest impact on transaction processing services (ie. lower commissions) and are in the early stages of evolving changes in investment management services with the advent of ETFs.  Ultimately, these advances will change the relationship management services of asset management firms and drive a dramatic, secular change toward advice driven, consumer focused investment advisory services and away from traditional sales driven business models.