Retail investors piling into ETFs, Schwab says

Over the last six months, The Charles Schwab Corp. has seen flows from individual investors in exchange-traded funds surpass flows from registered investment advisers, marking the first time that this has happened.

Overall, the ratio of ETF assets held between advisers and investors is 50-50, Peter Crawford, senior vice president of investment management services at Schwab, said in an interview at the company’s conference.

“Registered investment advisers are early adopters,” he said.

But now that investors have a better understanding of ETFs, they are more comfortable investing in them, Mr. Crawford said.

Schwab will divulge the actual amount that individual investors are investing in ETFs next month, said Alison Wertheim, a spokeswoman.

Even though more investors are directly using ETFs, it doesn’t mean that fewer advisers are doing so, Mr. Crawford said.

“Ninety percent of adviser clients use ETFs, compared to 17% of Schwab’s individual investor clients,” he said.

Twenty-five percent of advisers surveyed by Schwab in July said that they planned to use more ETFs over the following six months.

Advisers are the primary type of investor in Schwab’s proprietary ETFs, which came to market at the end of last year.

Close to 40% of the assets of Schwab ETFs are owned by RIAs. That figure has grown dramatically over the past few months, Mr. Crawford said.

To cater to both investors’ and advisers’ needs, Schwab is discussing expanding its ETF offerings.

Schwab has filed with the Securities and Exchange Commission to launch a mid-cap and a real estate investment trust ETF. The firm’s management team is also discussing launching a total-bond ETF or some type of broader-market-bond ETF that is tied to the credit markets, Mr. Crawford said.

Schwab launched three fixed-income ETFs in August, and those portfolios now have $120 million in assets.

E-mail Jessica Toonkel at [email protected].