Study: Self-Directed Investors Use ETFs 20% More than Advised Investors

Cogent Research, a research firm I’ve never heard of, agrees with the assessment Bruce Bond, the CEO of PowerShares, made on this blog last week.

“We think that what is happening in the broader market has truncated the adoption of the ETF among the investment professional community,” said Bond.

Cogent says self-directed investors are playing an increasingly significant role in defining the ETF product landscape. In ETF Investor Brandscape, a recently published national study of 4,000 affluent Americans, the firm says “interest, usage and commitment to ETFs is significantly higher among self-directed investors who manage their own portfolios.”

According to Cogent, these are the study’s major findings:

* Self-directed investors’ awareness of several top ETF providers is almost twice that of advised investors.

* Equal proportions of self-directed and advised investors use ETFs, however, self-directed investors allocate 20% more of their portfolio to ETFs (The actual numbers were 17% average allocation to ETFs among self-directed vs. 14.1% average allocation to ETFs among advised).

* Among current ETF owners, self-directed investors are far more loyal to their primary ETF provider than are investors who purchase and own their investments through an advisor.

* Usage of ETFs is expected to increase significantly in 2009 among current owners and non-owners alike. On average, one out of every four (25%) current ETF owners plans to increase their ETF holdings. Among self-directed investors, the proportion of likely increased use rises to 35%, representing a 40% higher increased adoption rate.

* iShares and Vanguard are fighting for the number one spot in overall customer experience, which will payoff in loyalty and increased investments. Meanwhile, PowerShares, State Street Global Advisors, and ProShares must work harder to inspire existing clients to increase investments. Furthermore, challenger brands like WisdomTree and Rydex need to focus on the basics–increasing investor awareness of their offerings.

“Everything we see in the data suggests that there is real ‘home-grown’ passion among investors–both advised and self-directed–for ETFs,” says Christy White, founder and principal of Cogent Research in a written statement. “Providers that are committed to promoting and supporting a dual distribution strategy will prevail in this growing marketplace.”

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