ETFs are booming, and RIAs want in on the action.

Advisors are diving headfirst into the rapidly growing exchange-traded fund industry, with assets expected to surpass those of mutual funds by 2030, according to JPMorgan. A recent AdvizorPro report listed the 10 ETF issuers with the largest change in the number of RIAs using their products, based on data from the 13F filings of 5,136 SEC-registered firms. On the whole, thematic, high-fee, and tactical ETFs outperformed, with ETF turnover remaining high despite a slowdown in fund launches. It’s an area of the fund industry that advisors will want to keep a close eye on.

Leading the Pack

One reason for the shift toward niche strategies is younger advisor teams, said Hesom Parhizkar, chief technology officer at AdvizorPro. “The data is proving that you don’t have to have a super-long 10 years to start raising assets,” Parhizkar said. “Smaller teams, potentially some younger families or clients, [are saying], ‘Hey, I want to allocate my investments here, here, here.’”

Eldridge, an investment adviser specializing in structured credit, saw the most growth, at 41.5%. BondBloxx Investment Management, another newer fixed-income player that launched in 2021, was second, at 34.22%. These managers — as well as Defiance ETFs and Harbor Capital Advisors — beat out more established names, like Franklin Templeton and Motley Fool, because of “heightened demand for alternatives and persistent rate volatility,” per the report. The top three fastest-growing ETFs by number of RIA investors also back up the ongoing shift to alternatives:

• Pacer’s US Large Cap Cash Cows Growth Leaders ETF (COWG), which invests in large-cap companies with high free cash flow margins, saw the most growth, at 46%, and is up 10.69% year-to-date.
• Eldridge’s BBB-B CLO ETF (CLOZ), which invests in CLOs, took second, at 42% growth, and was up 2.9% year-to-date.
• Simplify’s Managed Futures Strategy ETF (CTA), which invests in equity, US Treasury, commodity, and foreign exchange futures contracts, saw 41% growth and was down 1.5% year-to-date.

The next fastest-growing ETFs were First Trust Advisors’ Cboe Vest U.S. Equity Moderate Buffer ETF (GFEB), the first buffer on the list, and BlackRock’s AAA CLO ETF (CLOA).

Best of Both Worlds. Niche strategies are having a heyday amid market volatility, and Parhizkar said the long-term trend remains directed away from mutual funds toward the ETF landscape, even for RIAs. “A lot of these mutual fund companies are overlaying ETFs on top of mutual funds,” he said. “ETFs are lower cost, but they’re also just more liquid… So [among] RIAs that have traditionally been doing mutual funds — my guess is that has been increasing.”

Racial disparities have existed throughout America’s history. Unfortunately, they still exist today.

Across multiple income levels, Black Americans were found to have fewer savings than other demographics, according to a recent report from the Employee Benefits Research Institute. For those with incomes of $75,000 or more, 77% of Black workers reported having saved for retirement, compared with 87% of others. Even with an advisor, those patterns can still persist, and they require wealth managers to be aware of all the seen and unseen factors that may be contributing to financial well-being.

“It’s a bit like driving a high-performance car on a track with unforeseen twists and turns,” said Roland McIntyre, principal advisor of Mountaintop Wealth. “You have the vehicle, you have the coach, but the track itself presents unique challenges.”

More than Data

While the data sheds light onto financial issues facing Black Americans, it doesn’t always give the full picture. For example, the numbers can’t quite capture issues such as the emotional weight of being the first to earn a certain level of income and trying to build generational wealth without a blueprint, said Sheena Gray, CEO of the Association of African American Financial Advisors.

“For many of us, higher income isn’t a green light to save more — it’s a lifeline to support others,” she told Advisor Upside. Often, higher earners are helping aging parents, covering tuition for siblings or nieces, or supporting loved ones. “That’s not mismanagement — that’s legacy in motion,” she added. “But it does mean our savings picture looks different.”

A little less than a third of Black respondents said they worked with an advisor compared with 40% of non-Black Americans, the EBRI report found. Black retirement plan participants were also more likely to take out loans to cover day-to-day expenses and make ends meet, while non-Black participants were more likely to use loans for large purchases like a car or a home. The report found:

• Some 63% of Black Americans earning $75,000 or more a year considered debt a problem for their household, compared with 45% of other workers with the same income
• Black retirees were more likely to retire early due to health problems and disability, continue to work in retirement, and say their lifestyle in retirement was worse than expected.

Empathy is Key. Like serving other groups, advisors need to be empathetic when working with Black clients. Wealth managers should recognize that backgrounds are diverse, and not everyone is coming in with the same generational wealth, responsibilities and goals.

“Black clients aren’t behind — we’re doing multiple jobs at once,” Gray said. “We’re navigating trauma, supporting others and still trying to dream for ourselves. That’s why representation and culturally relevant advice matters. It’s not enough to just have an advisor — that advisor has to see you.”

Here’s one more name to add to the list of remote work naysayers.

Whenever regulators show up to flip through files and ask tough questions, everybody has to be on their best behavior. But what if the pressures of on-site visits from the Financial Industry Regulatory Authority were no more? Well, that creates a whole host of new problems, according to the Public Investors Advocate Bar Association. FINRA’s remote inspection pilot program, rolled out last July, undermines its “foundational mission of investor protection” and increases the risk of misconduct, including sales abuses and regulatory evasion, PIABA wrote in a public letter to the self-regulator last month.

While a mix of in-person and remote inspections could be the norm for advisors in the future, PIABA President Adam Gana argues on-site visits in their current state are already lackluster and says introducing regular off-site options would be a step backward for client protection. “What FINRA should be doing is adding more robust inspection requirements instead of limiting them,” he told Advisor Upside. “We’ve seen regularly over the last 10 years a lack of sufficient supervision necessary to protect investors.”

The Honor System

FINRA’s voluntary, three-year Remote Inspections Pilot Program allows for eligible member firms to meet their inspection obligations without on-site visits. Firms just need to submit data including firm size, the volume and nature of customer complaints, the complexity of products offered and the nature of the client base. It’s similar to how FINRA allowed broker-dealers to fulfill inspection requirements remotely if offices met certain conditions during the pandemic.

“Instead of going onsite to an advisor’s office, opening up cabinets and saying ‘What’s in there? Tell me about this document? What is this check on your desk?’ [FINRA] just talks to an advisor remotely,” Gana said.

In its letter to FINRA, PIABA said:

• Remote inspections should not replace in-person visits, especially when it comes to home offices. Those locations should be subject to annual, unannounced, in-person audits.
• Even inspections every three years would be preferable to eliminating them entirely.
• In-person audits allow compliance personnel to spot red flags like financial excess, physical marketing materials for unauthorized investments and other evidence of off-the-books activity.

“There are simply elements of supervision, culture, and compliance that cannot be adequately assessed through a screen,” Gana said. “PIABA does not support remote inspections — period.”