Advisors Need to Talk More About Passive Investing, Survey Finds

New research from FTSE Russell shows most investors were happy with their index funds and advisors in 2022.

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Reviewed by: Michelle Lodge
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Edited by: Michelle Lodge

Vanguard Group founder Jack Bogle called index funds, commonly referred to as passive investing in the exchange-traded fund world, “the greatest invention in the history of finance.” 

Bogle’s characterization, told by Robin Wigglesworth in “Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever,” may be open to debate. After all, Vanguard was the first registered investment advisor to offer index funds to everyone. Today it is the No. 2 issuer of ETFs, after BlackRock.  

Still, the value of index funds to the average investor is undisputed. Seconding that notion is the March 15 survey from stock market index provider FTSE Russell, which found that 66% of respondents had asked their advisors to discuss index funds. Yet 45% said their advisors have never discussed index funds with them. 

At BlackDiamond Wealth in New York City, financial advisors do discuss index funds with clients, said Chief Investment Officer Ken Nuttall, “but we don't go into the nitty-gritty of a fund.” He explains that it is the financial advisor’s job to work out with clients what they need, because the offerings are vast and complex.  

An Open Invitation 

Russell sees the investors’ strong interest in the index/passive investing space as an open invitation for financial advisors to improve on educating clients about it, and one more reason to engage with them.  

This couldn’t come at a better time. A whopping 92% of the survey respondents told FTSE that they were happy with the performance of their index funds and their advisors in 2022, an exceptional finding, given that last year was an extremely volatile time for markets. 

Other top reasons for index funds’ popularity among investors, according to the FTSE Russell survey, included good performance over time, according to 44% of respondents, creating a diversified portfolio, said 42%, and ease of use, per 38%. 

Surprisingly, cost wasn’t a deciding factor. In fact, the lower importance of cost savings falls in line with a recent study from Cerulli Associates, which reported that many institutional investors plan to opt for actively managed funds this year, in which they pay a fee.  

“Many of our investors believe that index strategies will beat most active strategies over time, and they like that they are getting the same diversification of an international index fund while supporting their values of democracy,” said Julie Cane, CEO of Democracy Investments, whose fund focuses on reinforcing democratic activity and shuns aiding authoritarian policies or governments. 

 

Follow Michelle Lodge on Twitter @lodgemich   

Michelle Lodge is a journalist who is a contributor to many sites: Fortune, Money, Time, Barron’s, Investopedia, CNBC.com and Bloomberg.com.