Truce: 401(k) Advisors Make Active/Passive Peace

401k, active, passive, retirement

I love you, man.

It’s a thaw in relations not seen since the Soviets.  More than 80 percent of financial advisors agree that passive investments help minimize overall portfolio fees and that active managers are ideal for certain asset classes, Cerulli Associates finds.

Doing its part to increase the peace, the global research and consulting firm notes, “Approximately 75 percent of advisors agree that active and passive investments complement each other.”

“Cerulli argues that the debate of active or passive has shifted to active and passive, with more focus on how to best use both as tools to build more efficient client portfolios,” Brendan Powers, Cerulli analyst, said in a statement.

“Through Cerulli’s conversations with industry executives, there is a feeling that active and passive will ultimately coexist and assets within each strategy type will eventually reach an equilibrium,” Powers added. “In other words, it’s not a zero-sum game, and instead each will be used where they provide the most benefit.”

The idea that passive can help reduce overall portfolio costs is a universal theme across all intermediary channels, with each having at least 80 percent of advisors in agreement, he continued, a sentiment that likely results from “increased awareness of fiduciary obligation, advisor migration toward fee-based accounts, and an increased client understanding of fees.”

“In general, active will retain a key role in asset classes where it adds value over passive,” he concluded. Identifying these asset classes in which these advisors are more willing to use an active product remains an essential exercise for asset managers.

The asset classes where more than half of advisors prefer actively managed mutual funds include international/global fixed income (61 percent), multi-asset class (60 percent), emerging markets fixed income (58 percent), emerging markets equity (53 percent) and international/global equity (51 percent).

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