Exchange Traded Funds (ETF) are a form of financial security that includes other securities, which can be anything and ranges from stocks, commodities, to bonds. The idea is similar to that of mutual funds, except ETF’s are traded like ordinary stocks on any stock trading platform. There are many ETF’s to choose from as a Registered Investment Advisor (RIA), from 3x leveraged, small cap, to sector type.
As is typical with stocks, the price of ETF’s fluctuates on a daily basis and is impacted by the overall market and the value of the underlying asset that the ETF is based on. Many wealth management Customer Relationship Management (CRM) software such allow RIA’s to sort and filter through thousands of different ETF’s based on your client’s exact needs such as investment horizon, diversification and risk profile, allowing you to navigate the vast amount of ETF’s with ease and allowing RIA’s and investors of all sizes to find what they want, faster.
ETF’s fall in two main categories when it comes to how they are managed, actively managed ETF’s and passively managed ETF’s. In passively managed ETF’s, the manager of the fund is not purchasing shares to get the most optimal return for the fund instead, they leave the assets as is. Actively managed ETF’s are overseen by a portfolio manager that is engaged in the buying and selling of shares on behalf of the investor, changing the overall asset distribution of the ETF fund to get better returns than other, non-actively managed ETF’s and actively traded funds as well. Due to the portfolio managers actively trading securities for the ETF, the expense ratio of the fund would typically be higher and can be reduced by wealth management software, allowing investors to get better returns.
There are several wealth management software such as Junxure that also have a CRM aspect to them designed exclusively for financial advisors to provide clients with the best service possible when it comes to investment options, with thousands of ETF’s also being an option within the software. When building a portfolio, every RIA would need to find the best CRM for financial advisors, which would allow them to screen and choose the best ETF’s based on their client’s needs or the RIA could use software that would help with the screening process, such as Advisor Engine, Sales force or any other wealth management software would work.
Whether you are using wealth management software or Financial CRM’s to help you build an investment portfolio, ETF’s are becoming more and more vital to investors and RIA’s as they provide a basket of assets and many come with sector specific assets or specialize in one particular type of asset. Despite ETF’s being quite similar to mutual funds, There are a few unique aspects of ETF’s that make them more useful for a RIA or an investor who is managing their own portfolio, which are the lower investment minimums required to buy into ETF’s, the liquidity of buying and selling ETF’s on the open market and the real time pricing on each share you buy and sell.