The majority of investors want their advisors to talk with them about index funds — but about half report that their advisors have never discussed the strategies with them. That’s according to a survey of U.S. investors by FTSE Russell, a subsidiary of the London Stock Exchange Group and a global provider of benchmarks.
The results were released as part of FTSE Russell’s inaugural Wealth Survey, which polled more than 1,000 U.S. retail investors in November 2022 on topics related to indexes, index investing, and the economic outlook for 2023. Of those surveyed, 64 percent currently work with a financial advisor.
“Retail investors plan to increase their index-based holdings, creating an opening for advisors, yet almost half of investors with advisors (45 percent) say they have not discussed this. What’s more, two-thirds of those with advisors would like to do so – showing the scale of this missed new business opportunity,” FTSE Russell wrote in the report.
According to the survey, only about a quarter of retail investors report using index funds and most indicate that they are not knowledgeable about them. Their desire to know more about index funds points to an educational gap for advisors, according to the company.
Lack of knowledge is the number one barrier for investors who aren’t already invested in index funds: The largest portion of respondents said they weren’t familiar with how index strategies work or were unsure which type of fund is best for them. Other barriers included the desire to outperform the market and a preference for investing in individual securities.
Of those who were invested in index funds, 77 percent stated that their index strategies performed as well or better than their other investments. Only 5 percent disagreed with this statement, while 18 percent said they were unsure. Despite turbulent markets, 38 percent of those already invested in index funds planned to increase their use, with 59 percent planning to maintain their investment.
Age played a part: Of those already invested in index funds, 62 percent of Millennials — those aged 25-40 — planned on increasing their use of the strategies. By comparison, 50 percent of Gen X (aged 41 to 56), 14 percent of Boomers (aged 57 to 75), and 22 percent of the silent generation (aged 76 and above) wanted to invest more in index funds.
High-net-worth investors were most likely to be invested in index funds, with 40 percent of those with more than $1 million in investable wealth currently invested in the strategies. This was followed by those with investable assets between $250,000 and $999,999 at 31 percent and those with $100,000 to $249,999 at 24 percent.
Good performance over time (44 percent) and creation of a diversified portfolio (42 percent) were cited as the top reasons for using index strategies, followed by ease of use (38 percent), less stress and peace of mind (31 percent), and managing portfolio risk (30 percent).
“Retail investors view index strategies as a way to diversify and achieve long-term gains. Advisors should take note that high-net-worth clients especially are satisfied with their index strategies: They don’t always want to allocate to unique and alternative investments. What’s clear is that many investors need more investment education, which is an opportunity for financial advisors,” the report states.