2016 etf investor study - charles schwab · in the next few years, will your portfolio have…?...

2016 ETF Investor Study

September 2016

Page

About the Study 3

RIAs and Investors: Embracing ETFs in both action and words 4

The role ETFs play in a portfolio 12

Evaluating ETFs 17

Researching ETFs 23

Respondent Profiles 27

Focus on Investors: By Generation 31

Focus on RIAs: By Generation 39

Disclosures 47

Table of Contents

About the Study

What

An online study among a national sample of Registered Investment Advisors (RIAs) and ETF Investors was conducted by Koski Research

Koski Research is neither affiliated with, nor employed by, Charles Schwab & Co., Inc.

When The RIA survey was fielded June 29 to July 20, 2016 The ETF Investor survey was fielded June 28 to July 15, 2016

Who

312 RIAs completed the study To qualify for the study, RIAs had to:

Be registered in RIA Database Have bought or sold an ETF in the past 2 years

1,008 ETF Investors completed the study To qualify for the study, ETF Investors had to

Be 25 to 75 years old Have a minimum of $25,000 in investable assets Have purchased an ETF in the past 2 years Be at least somewhat familiar with ETFs

3

4

RIAs and Investors: embracing ETFs in both action and words

3%

21%

59%

17%

Investing Game-Changers: most investors and RIAs believe ETFs have had a positive impact on how they invest

5

Q11. What kind of impact would you say ETFs have had on the way you invest your money? (Base: ETF Investors=1,008) Q7. What kind of impact would you say ETFs have had on the way you invest in the portfolios you manage? (Base: RIAs=312)

1% 7%

48%

44%

Impact ETFs Have Had on…

Positive impact

(net) = 76% Positive impact

(net) = 92%

A substantial positive impact

A moderate positive impact

No impact

A negative impact

A substantial positive impact

A moderate positive impact

No impact

A negative impact

The way you invest your money The way you invest in the portfolios you manage

RIAs

ETF Investors

Individual investors continue to make strides in their understanding and confidence around ETFs.

Q10. How has your knowledge of ETFs changed over the past year? Q31. How confident are you in your ability to choose an ETF that is right for your investment objectives? (Base: ETF Investors=1,008)

6

How ETF Knowledge Has Changed in Past Year

Know more now 44%

Stayed about the same

52%

More confused now

1%

Never fully understood

them 3%

Especially among Millennials (64%) and

Gen X (51%), compared to Boomers

(37%)

10%

62%

28%

Extremelyconfident

Somewhatconfident

Not at all confident

Confidence in Ability to Choose the Right ETF

Confident (net) = 90%

ETF Investors

3% 2% 8% 26% 20% 22% 19%

7% 2% 19% 36% 19% 12% 6%

1% 4% 24% 22% 21% 15% 13%

In 5 Years

Currently

In 5 Years

Currently 4% 4% 30% 36% 15% 7% 6%

On average, 1/3 of RIAs’ investments are in ETFs…and they expect that to increase in the years ahead

7

Q12/Q8 What percent of all of your investments is in ETFs today, if any? / What percent of all the assets you manage is in ETFs today, if any? Q18/Q17 Looking ahead five years, what percentage of your portfolio do you expect will be in ETFs? / Looking ahead five years, what percentage of the assets

you manage do you expect will be in ETFs? (Base: ETF Investors=1,008; RIAs=312)

Percentage of Portfolio in ETFs

Don’t know 75-100% 50-74% 25-49% 10-24% 1-9% 0%

MEAN

22.5%

28.7%

33.9%

44.4%

ETF Investors

RIAs

1-24% (net)=66%

1-24% (net)=55%

1-24% (net)=46%

10-49% (net)=34%

25-100% (net)=28%

25-100% (net)=37%

25-100% (net)=49%

25-100% (net)=61%

+6.2

+10.5

MEAN

3% 4% 4%

45%

34%

10%

More than half of RIAs and 44% of investors have increased their investments in ETFs in the past year…

8

Q15. In the last year, which of the following did you do, if any? (Base: ETF Investors=1,008) Q14. In the last year, which of the following did you do with the assets you manage, if any? (Base: RIAs=312)

Change in Investments in Past Year…

Increased ETFs

(net) = 44%

Significantly increased ETFs

Moderately increased ETFs

Kept ETFs the same

Moderately decreased ETFs

Significantly decreased ETFs None/Don’t know

In your investments For investment of assets you manage

3%

5%

40%

40%

12%

Increased ETFs

(net) = 52%

Significantly increased ETFs

Moderately increased ETFs

Kept ETFs the same

Moderately decreased ETFs

Significantly decreased ETFs None/Don’t know

RIAs

ETF Investors

8% 1% 3%

45%

35%

8%

…and just over half of RIAs and two in five investors plan to increase their ETF investments in the next year

9

Q16. In the next year, which of the following do you expect to do, if any? (Base: ETF Investors=1,008) Q14. In the next year, which of the following do you expect to do with the assets you manage, if any? (Base: RIAs=312)

Expected behavior in the next year

Increase ETFs (net) = 43%

Significantly increase ETFs

Moderately increase ETFs

Keep ETFs the same

Moderately decrease ETFs

Significantly decrease ETFs None/Don’t know

In your investments For investment of assets you manage

3% 1% 2%

40%

45%

9%

Increase ETFs (net) = 54%

Significantly increase ETFs

Moderately increase ETFs

Keep ETFs the same

Moderately decrease ETFs

Significantly decrease ETFs None/Don’t know

RIAs

ETF Investors

Nearly half of RIAs and more than one in four investors expect ETFs to be their primary investment in the future

Q17. Do you see ETFs as being the primary investment type in your portfolio in the future? (Base: ETF Investors=1,008) Q16. Do you see ETFs as being the primary investment type in the assets you manage in the future? (Base: RIAs=312)

Yes 28%

No 54%

Not sure 18%

10

Those who see ETFs as the primary investment type in the future…

Yes 48%

No 37%

Not sure 15%

In your portfolio For the assets you manage

RIAs

ETF Investors

6% 33% 18% 21% 16% 6%

5% 36% 28% 20% 7% 4%

The $100,000 Question: with an extra $100K to invest, RIAs would put an average of $43.6K into ETFs

11

Q20 If you had another $100,000 to invest, how much would you put into ETFs? (Base: ETF Investors=1,008) Q19. If a client of yours had other $100,000 to invest, how much would you put into ETFs? (Base: RIAs=312)

Percent of $100,000 Would Invest in ETFs

75-99% 50-74% 25-49% 1-24% 0%

MEAN

37.3%

43.6%

ETF Investors

RIAs

1-49% (net)=64%

1-49% (net)=51%

50-100% (net)=28%

50-100% (net)=43%

If you had another $100,000 to invest

If a client had another $100,000 to invest

100%

MEAN

12

The role ETFs play in a portfolio

A hammer

16%

A scalpel 35%

Both 35%

Neither 14%

ETFs: A scalpel or a hammer?

Q23. If ETFs were a tool, would they be more like…? (Base: ETF Investors=1,008; RIAs=312)

13

If ETFs Were a Tool, They’d Be More Like…

A hammer

23%

A scalpel 14% Both

55%

Neither 8%

A blunt instrument for broad market access

A blunt instrument for broad market access

A precision instrument for accessing niche segments of the market

A precision instrument for accessing niche segments of the market

RIAs

ETF Investors

39%

37%

36%

26%

24%

23%

23%

21%

12%

For broad equities market exposure

For sector exposure

For exposure to targeted segmentsof the equities market

For emerging markets exposure

For exposure to targeted segments ofthe fixed income market

For broad bond/fixed income marketexposure

For international equities exposure

For commodities exposure

For international fixed income/bondmarket exposure

Both RIAs and investors say that the #1 way they use ETFs is for broad equities market exposure

Q13. How do you use ETFs in your portfolio? (Base: ETF Investors who have ETF investments=968) Q9. How do you use ETFs within the portfolios you manage? (Base: RIAs who have ETFs in portfolios managed=299)

14

How ETFs Are Used…

In your portfolio Within the portfolios you manage

81%

59%

55%

50%

48%

45%

44%

38%

31%

For broad equities market exposure

For international equities exposure

For emerging markets exposure

For sector exposure

For broad bond/fixed income marketexposure

For exposure to targeted segmentsof the equities market

For exposure to targeted segments ofthe fixed income market

For commodities exposure

For international fixed income/bondmarket exposure

RIAs

ETF Investors

22% 24%

13% 17%

65% 59%

Yes

No

Not sure 26% 29%

43% 46%

31% 25%

RIAs see ETFs as one piece of the puzzle in a portfolio; investors more likely to view ETFs as a replacement for individual stocks and bonds

15

Q24. Would you consider using stock-based ETFs instead of individual stocks in your portfolio? Q25. Would you consider using fixed income ETFs instead of individual bonds in your portfolio? (Base: ETF Investors=1,008) Q21. For the assets you currently manage, do you plan to replace individual stocks with stock-based ETFs in the next year? Q22. For the assets you currently manage, do you plan to replace individual bonds with fixed income ETFs in the next year? (Base: RIAs=312)

Use of ETFs in Place of Stocks/Bonds In your portfolio: For assets managed:

Stock-based ETFs in place of

individual stocks

Fixed income ETFs in place of

individual bonds

Stock-based ETFs in place of

individual stocks

Fixed income ETFs in place of

individual bonds

RIAs

ETF Investors

ETFs help better 32%

Mutual funds help

better 19%

Both equally

49%

Half of those surveyed say ETFs and mutual funds play an equally important role in a portfolio

Q22. What role do ETFs and mutual funds play in relation to each other in your portfolio? (Base: ETF Investors who have ETFs=968) Q20. What role do ETFs and mutual funds play in relation to each other in the assets you manage? (Base: RIAs=312) Q21. In the next few years, will your portfolio have…? (Base: ETF Investors=1,008)

16

Roles of ETFs and Mutual Funds

ETFs help better 36%

Mutual funds help

better 8%

Both equally

56%

In helping me reach my investments goals In helping to reach my clients’ investment goals

In next few years, I expect my portfolio to have:

More invested in ETFs than mutual funds 38%

More invested in mutual funds than ETFs 31%

About the same amount in each 31%

RIAs

ETF Investors

Evaluating ETFs

17

79%

77%

72%

65%

61%

38%

28%

26%

21%

16%

20%

22%

24%

31%

33%

42%

57%

64%

60%

47%

1%

1%

3%

3%

5%

20%

15%

9%

18%

35%

0%

0%

1%

1%

1%

1%

1%

2%

Low expense ratio

Total cost

Liquidity/trading volume of the ETF

How well it tracks to its index

Access/exposure to a specific part ofthe market

Trades commission-free

Historical returns of the ETF

Total assets in the ETF

ETF provider

Morningstar rating

Extremely important Somewhat important Not at all important Don't know

RIAs say low expense ratio, total cost and liquidity/trading volume are extremely important when evaluating an ETF

Q24. When choosing an ETF, how important to you is each of the following? (Base: RIAs=312)

18

Importance When Choosing an ETF

RIAs

63%

63%

50%

48%

47%

42%

42%

33%

33%

31%

32%

31%

41%

41%

44%

50%

44%

51%

51%

52%

3%

4%

5%

9%

6%

5%

10%

12%

12%

12%

2%

2%

4%

2%

3%

3%

4%

4%

4%

5%

Low expense ratio

Total cost

How well it tracks to its index

Trades commission-free

Access/exposure to a specific part ofthe market

Historical returns of the ETF

Liquidity/trading volume of the ETF

Total assets in the ETF

ETF provider

Morningstar rating


Individual investors prioritize low expense ratio, total cost and how well ETF tracks to its index when evaluating an ETF

Q27. When choosing an ETF, how important to you is each of the following? (Base: ETF Investors=1,008)

19

Importance When Choosing an ETF

ETF Investors

82%

51%

41%

37%

15%

43%

49%

44%

3%

4%

7%

19%

2%

3%

Expense ratio

Bid/ask spread

Premium and discount pricing

Trade commission

63%

49%

37%

31%

31%

42%

49%

51%

3%

7%

7%

10%

3%

2%

7%

8%

Expense ratio

Trade commission

Premium and discount pricing

Bid/ask spread


Expense ratio is the most important ETF cost criterion for both RIAs and individual investors

Q28/Q25. How important to you is each of the following when evaluating the cost of a specific ETF? (Base: ETF Investors=1,008; RIAs=312)

20

Importance When Evaluating the Cost of a Specific ETF

ETF Investors

RIAs

3% 2% 8%

40%

30%

17%

1% 4%

20%

45%

19%

11%

Nearly half of individual investors say that the ability to trade an ETF commission-free is extremely important

21

Q29/Q26. How important is the ability to trade ETFs without commissions or other brokerage firm fees? (Base: ETF Investors=1,008; RIAs=312)

Importance of Ability to Trade ETFs without Commissions or Other Brokerage Fees

Most important, I would move my account to a brokerage firm that offers commission-free ETFs

Very important, I only invest in commission-free ETFs at my brokerage firm

Somewhat important, it is not the only factor that I consider in my buying decision

Not as important as other factors

Not important at all Don’t know

Most important, I would move my account to a brokerage firm that offers commission-free ETFs

Very important, I only invest in commission-free ETFs at my brokerage firm

Somewhat important, it is not the only factor that I consider in my buying decision

Not as important as other factors

Not important at all Don’t know

Most important/very important (net)=47%

Most important/very important (net)=30%

RIAs

ETF Investors

72%

56%

51%

43%

41%

24%

23%

37%

40%

43%

43%

44%

4%

6%

8%

13%

15%

30%

The right selection of ETFs

Broad selection of ETF categories

Broad selection of ETF providers

No additional fees (short-term redemption fees)

Choice of commission-free ETFs within category

The most number of commission-free ETFs

52%

51%

41%

41%

39%

31%

40%

39%

48%

37%

49%

50%

5%

7%

8%

11%

8%

15%

3%

3%

3%

11%

4%

4%

Broad selection of ETF categories

No additional fees (short-term redemption fees)

Choice of commission-free ETFs within category

The right selection of ETFs

Broad selection of ETF providers

The most number of commission-free ETFs


RIAs look for the right selection of ETFs when evaluating a commission-free ETF offering; individual investors cite broad selection of ETF categories and no additional fees as extremely important

Q30/Q27. How important to you is each of the following when evaluating brokerages that offer commission-free ETFs/a commission-free ETF platform? (Base: ETF Investors=1,008; RIAs=312)

22

Importance When Evaluating Brokerages That Offer Commission-Free ETFs

ETF Investors

RIAs

1%

1%

1%

1%

1%

2%

23

Researching ETFs

RIAs

88%

86%

65%

65%

50%

48%

46%

33%

19%

19%

16%

9%

12%

33%

32%

45%

47%

46%

62%

76%

77%

74%

3%

2%

2%

3%

5%

5%

8%

5%

5%

4%

10%

3rd party analysis/ratings

ETF provider website

Financial media

Prospectus

Investment literature

Brokerage firm's website/tools

Industry events and speakers

Online classes or webinars

Stock exchange website

Regulatory organizations

Short videos or tutorials

Currently use Don't currently use Don't use - would like to

RIAs most often use 3rd party analysis or ETF provider websites when researching ETFs

Q10. Which sources do you use when doing research to choose an ETF? (Base: RIAs=312)

24

Sources Used for Researching ETFs

19%

62%

19% Excellent

Good

Adequate

Yes 66%

No 28%

Not sure 6%

Two-thirds of RIAs look to ETF providers for guidance on ETFs; the quality of guidance is rated excellent or good

Q11. Do you look to ETF providers for guidance/expertise on ETFs? (Base: RIAs=312) Q12. How would you rate the quality of that guidance? (Base: RIAs who look to ETF providers for guidance=207)

25

RIAs

ETF Providers Used for Guidance Quality of Guidance Received (among those who turn to ETF Providers for guidance)

66%

55%

54%

49%

45%

42%

38%

30%

27%

26%

18%

16%

13%

9%

9%

28%

36%

39%

44%

45%

49%

51%

62%

66%

65%

70%

69%

77%

79%

80%

6%

9%

7%

7%

10%

9%

11%

8%

7%

9%

12%

15%

10%

12%

11%

Brokerage firm's website/tools

3rd party analysis/ratings

Financial media

Financial professional

ETF provider website

Prospectus

Investing website

Stock exchange website

Referrals / recommendations

Investment literature

Short videos or tutorials

Online classes or webinars

Regulatory organizations

In-person group classes with instructor

Robo-advice or automated portfolio builder

Curently use Don't currently use Don't use - would like to

Two-thirds of investors use their brokerage firm’s website when researching ETFs

Q14. Which sources do you use when doing research to choose an ETF? (Base: ETF Investors=1,008)

26

Sources Used for Researching ETFs

ETF Investors

Respondent Profiles

27

Three in four RIAs surveyed have traded ETFs in the past month; half of investors surveyed have traded ETFs in the past quarter

28

32%

14%

22%

32%

Q8. When is the last time you personally bought or sold an ETF? (Base: ETF Investors=1,008) Q5. When is the last time you bought or sold ETFs for the accounts you manage? (Base: RIAs=312)

Last time Bought or Sold ETFs…

RIAs

ETF Investors

Past month

Past 3 months

Past 6 months

Past year or longer

Past month to 3 months

(net) = 54%

1%

8% 4%

11%

76% Past month

Past 3 months

Past 6 months

Prefer not to answer Past year or longer

Past month to 3 months

(net) = 87%

Personally bought/sold Bought/sold for accounts managed

ETF Investors (n=1,008)

Gender Male 67% Female 33%

Age Millennials 14% Generation X 20% Boomers 66% Mean 55 years

Employed Full time 51% Part time 11% Retired 32% Other 7%

Region Northeast 26% Midwest 23% South 29% West 22%

ETF Investors (n=1,008)

Personal Income <$50K 12% $50K-$74.9K 17% $75K-$99.9K 20% $100K-$149.9K 27% $150K+ 24% Mean (in thousands) $117.28

Investable Assets <$100K 17% $100K-$499.9K 36% $500K-$999.9K 21% $1M+ 26% Mean (in thousands) $951.8

ETF Investor Profile

29

RIAs (n=312)

Gender Male 87% Female 13%

Age Millennials 19% Generation X 43% Boomers 38% Mean 46 years

Region Northeast 23% Midwest 19% South 26% West 33%

Personal Income <$50K 15% $50K-$74.9K 24% $75K-$99.9K 21% $100K+ 40% Mean (in thousands) $100.8

RIAs (n=312)

Assets Under Management

<$50M 45%

$50M-$149.9M 18%

$150M-$249.9M 10%

$250M-$499.9M 10%

$500M+ 15%

Mean (in thousands) $239.3M

RIA Profile

30

Focus on Investors: By Generation

31

Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown.

32

Investors: Generations

Millennialsa (n=163)

Gen Xb (n=193)

Boomersc (n=505)

Maturesd (n=147)

Impact ETFs have on way invest money: Substantial/moderate positive impact (net) 86%bcd 77% 73% 75% Substantial impact 33%bcd 20%cd 13% 9% Moderate impact 53% 57% 60% 66%a No impact 12% 22%a 24%a 20% Moderate/substantial negative impact (net) 2% 1% 3% 5%

In last year investments in ETFs have: Increased (net) 63%bcd 46% 38% 39% Significantly increased investments in ETFs 21%bcd 11%d 7% 4% Moderately increased investments in ETFs 42%c 35% 31% 35% Kept investments in ETFs the same 31% 46%a 49%a 43%a Decreased (net) 4% 4% 10%ab 10%ab Moderately decreased investments in ETFs 3% 1% 5% 7%b Significantly decreased investments in ETFs 1% 3% 5% 3% Don't know 1% 3% 1% 1% None - I don't own any ETFs 1% 1% 2% 7%abc

Focus On Investors: Generations


33



Gen Xb (n=193)

Boomersc (n=505)

Maturesd (n=147)

In next year, expect investments in ETFs to: Increase (net) 66%bcd 45%c 37% 35% Significantly increase investments in ETFs 23%bcd 10%cd 4% 2% Moderately increase investments in ETFs 43%c 35% 33% 33% Keep investments in ETFs the same 29% 44%a 49%a 50%a Decrease (net) 4% 6% 4% 4% Moderately decrease investments in ETFs 3% 4% 3% 3% Significantly decrease investments in ETFs 1% 2% 1% 1% Don't know 1% 4% 7%a 8%a None - I don't own any ETFs 0% 1% 3% 4%

Percentage of investments in ETF Now: None 2% 4% 4% 6% 1-9% 16% 23% 34%ab 40%ab 10-24% 34% 37% 38% 31% 25-49% 17% 21%c 12% 13% 50-74% 15%bcd 7% 5% 3% 75-99% 14%bcd 6%c 2% 2% 100% 1% 1% 0% 0% Don't know 1% 1% 5% 5% MEAN 35.8%bcd 26.0%cd 18.4% 16.4%



34



Gen Xb (n=193)

Boomersc (n=505)

Maturesd (n=147)

Percentage of investments in ETF in Five Years: None 1% 1% 2% 3% 1-9% 10% 15% 21%a 29%abc 10-24% 28% 34% 40%a 33% 25-49% 24%cd 24%cd 17% 15% 50-74% 20%cd 14%d 9% 8% 75-99% 14%cd 8%cd 3% 3% 100% 1% 1% 0% 0% Don't know 2% 3% 8%ab 9%ab MEAN 41.0%bcd 33.0%cd 24.8% 21.6%

ETFs being the primary investment type in your portfolio in the future: Yes 60%bcd 38%cd 19%d 11%

If you had $100,000 to invest, amount would invest in ETFs All of it 7% 3% 4% 3% 75-99% 13%cd 9%cd 5% 3% 50-74% 33%cd 24%cd 17% 14% 25-49% 28% 31% 26% 26% 1-24% 18% 31%a 41%ab 46%ab None of it 1% 2% 7%ab 8%ab



35



Gen Xb (n=193)

Boomersc (n=505)

Maturesd (n=147)

Would consider using ETFs instead of: Individual stocks 81%bcd 69%d 62%d 52% Individual bonds 67%cd 67%cd 55% 52%

Last time bought/sold an ETF: 3 MONTHS OR LESS (NET) 66%cd 58%d 50% 46% Past month 45%cd 36% 28% 26% Past 3 months 21% 22% 22% 20% MORE THAN 3 MONTHS (NET) 34% 42% 50%a 54%ab Past 6 months 15% 17% 14% 12% Past year 10% 14% 23%ab 24%ab Past 2 years 9% 11% 13% 18%a

How knowledge of ETFs has changed over the past year: I think I know more now 64%bcd 51%cd 37% 36% It stayed about the same 33% 46%a 58%ab 59%ab I am more confused now 1% 1% 2% 2% I've never fully understood them 2% 2% 3% 3%

Confidence in ability to choose ETF that is right for investment objectives: Extremely confident 45%bcd 34%cd 24% 17% Somewhat confident 51% 61% 64%a 69%a Not at all confident 4% 5% 13%ab 14%ab



36



Gen Xb (n=193)

Boomersc (n=505)

Maturesd (n=147)

Understanding of ETFs A Novice 29% 29% 32% 35% An Intermediate 58% 55% 60% 59% An Expert 13%cd 16%cd 8% 6%

Importance when choosing an ETF: Extremely important Total cost (commissions, expense ratio, bid/ask spread) 61% 64% 64% 64% Low expense ratio 56% 63% 64% 65% Trades commission-free 55%cd 53% 45% 45% Historic returns of the ETF 53%c 48%cd 38% 36% How well it tracks to its index 48% 55% 50% 46% Total assets in the ETF 47%cd 39%cd 28% 25% Access/exposure to a specific part of the market 44% 56%ac 45% 46% Liquidity/trading volume of the ETF 44% 47% 41% 39% Morningstar rating 41%cd 36%d 29% 24% ETF provider 39% 32% 31% 33%



37



Gen Xb (n=193)

Boomersc (n=505)

Maturesd (n=147)

Importance when evaluating the cost of a specific ETF: Extremely important Expense ratio 60% 66% 63% 62% Trade commission 54% 53% 47% 47% Premium and discount pricing 49%cd 43%c 32% 35% Bid/ask spread 42%cd 35%c 28% 28%

Importance of being able to trade ETFs without commissions or other brokerage firm fees: Most important, I would move my account to a brokerage firm that offers commission-free ETFs 33%bcd 22%cd 12% 9% Very important, I only invest in commission-free ETFs at my brokerage firm 41%cd 33% 27% 26% Somewhat important, it is not the only factor that I consider in my buying decision 23% 36%a 46%ab 45%a Not as important as other factors 1% 5% 10%ab 15%ab Not important at all 0% 2% 2% 2% Don't know 2% 2% 3% 3%



38



Gen Xb (n=193)

Boomersc (n=505)

Maturesd (n=147)

Importance When Evaluating Brokerages That Offer Commission-Free ETFs: Extremely Important

No additional fees (e.g., short-term redemption fees for selling an ETF within 30 days of purchase) 58%cd 55% 48% 45% Broad selection of ETF categories 52% 60%cd 50% 48% The right selection of ETFs 47% 47%c 39% 37% Choice of commission-free ETFs within category 45% 45% 38% 38% The most number of commission-free ETFs 45%cd 36%cd 26% 25% Broad selection of ETF providers 43% 45%c 36% 40%


Focus on RIAs: By Generation

39

* Matures not shown due to extremely small base. Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown.

40

RIAs: Generations*

Millennialsa (n=58)

Gen Xb (n=134)

Boomersc (n=107)

Impact ETFs have on way invest money: Substantial/moderate positive impact (net) 97%c 95%c 87% Substantial impact 47% 45% 46% Moderate impact 50% 50% 41% No impact 3% 5% 11% Moderate/substantial negative impact (net) 0% 0% 2%

In last year investments in ETFs have: Increased (net) 47% 54% 52% Significantly increased investments in ETFs 10% 13% 11% Moderately increased investments in ETFs 36% 40% 41% Kept investments in ETFs the same 41% 42% 40% Decreased (net) 9% 3% 4% Moderately decreased investments in ETFs 9% 3% 4% Significantly decreased investments in ETFs 0% 0% 0% Don't know 3% 1% 2% None - I don't own any ETFs 0% 0% 2%

Focus On RIAs: By Generation

41

RIAs: Generations*

Millennialsa (n=58)

Gen Xb (n=134)

Boomersc (n=107)

In next year, expect investments in ETFs to: Increase (net) 43% 53% 60%a Significantly increase investments in ETFs 10% 8% 10% Moderately increase investments in ETFs 33% 45% 50%a Keep investments in ETFs the same 54%c 41% 33% Decrease (net) 0% 4% 3% Moderately decrease investments in ETFs 0% 3% 3% Significantly decrease investments in ETFs 0% 1% 0% Don't know 3% 2% 2% None - I don't own any ETFs 0% 0% 2%

Percentage of assets managed in ETF Now: None 3% 5% 2% 1-9% 16% 22% 30%a 10-24% 24% 19% 23% 25-49% 21% 22% 21% 50-74% 14% 19% 13% 75-99% 19%c 10% 7% 100% 3% 1% 2% Don't know 0% 1% 2% MEAN 41.0% 35.3% 29.6%



42

RIAs: Generations*

Millennialsa (n=58)

Gen Xb (n=134)

Boomersc (n=107)

Percentage of assets managed in ETF In Five Years: None 0% 2% 2% 1-9% 4% 11% 7% 10-24% 29%b 16% 33%b 25-49% 19% 27%c 15% 50-74% 9% 24%a 26%a 75-99% 33%bc 14% 8% 100% 3% 3% 5% Don't know 3% 3% 4% MEAN 51.2% 44.7% 41.2%

ETFs being the primary investment type in assets you manage in the future: Yes 52% 48% 50%

If your client had $100,000 to invest, amount would invest in ETFs All of it 7% 7% 6% 75-99% 26%c 14% 11% 50-74% 17% 27%c 15% 25-49% 14% 20% 20% 1-24% 29% 25% 42%b None of it 7% 7% 6%



43

RIAs: Generations*

Millennialsa (n=58)

Gen Xb (n=134)

Boomersc (n=107)

Would consider using ETFs instead of: Individual stocks 43%b 28% 33% Individual bonds 26% 21% 31%

Last time bought/sold an ETF 3 MONTHS OR LESS (NET) 97% 83% 88% Past month 85% 75% 73% Past 3 months 12% 8% 15% MORE THAN 3 MONTHS (NET) 3% 15% 13% Past 6 months 3% 7% 0% Past year 0% 8% 10% Past 2 years 0% 0% 2% Don’t know 0% 2% 0%



44

RIAs: Generations*

Millennialsa (n=58)

Gen Xb (n=134)

Boomersc (n=107)

Understanding of ETFs A Novice 9% 4% 3% An Intermediate 24% 51%a 41%a An Expert 67%b 45% 56%

Importance when choosing an ETF: Extremely important Low expense ratio 72% 78% 85% How well it tracks to its index 72% 69% 62% Total cost (commissions, expense ratio, bid/ask spread) 69% 86%ac 75% Liquidity/trading volume of the ETF 67% 72% 74% Access/exposure to a specific part of the market 48% 67%a 62% Trades commission-free 29% 40% 39% Total assets in the ETF 26% 25% 29% Historic returns of the ETF 24% 29% 27% Morningstar rating 17% 19% 10% ETF provider 9% 25%a 21%



45

RIAs: Generations*

Millennialsa (n=58)

Gen Xb (n=134)

Boomersc (n=107)

Importance when evaluating the cost of a specific ETF: Extremely important Expense ratio 79% 84% 86% Bid/ask spread 45% 55% 51% Trade commission 41% 37% 36% Premium and discount pricing 33% 44% 42%

Importance of being able to trade ETFs without commissions or other brokerage firm fees: Most important, I would move my account to a brokerage firm that offers commission-free ETFs 14% 11% 13% Very important, I only invest in commission-free ETFs at my brokerage firm 10% 22% 18% Somewhat important, it is not the only factor that I consider in my buying decision 55%c 49% 38% Not as important as other factors 14% 15% 25%b Not important at all 3% 2% 6% Don't know 4% 1% 0%



46

RIAs: Generations*

Millennialsa (n=58)

Gen Xb (n=134)

Boomersc (n=107)

Importance When Evaluating Brokerages That Offer Commission-Free ETFs: Extremely Important Broad selection of ETF categories 60% 54% 55% Broad selection of ETF providers 57%c 60%c 39% The right selection of ETFs for my clients 55% 73%a 78%a

No additional fees (e.g., short-term redemption fees for selling an ETF within 30 days of purchase) 38% 45% 43%

Choice of commission-free ETFs within category 34% 44% 39% The most number of commission-free ETFs 26% 21% 26%


Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

© 2016 Charles Schwab & Co., Inc. (Member SIPC) All rights reserved.

(0916-L9TS)

Disclosures

http://www.schwab.com/public/schwab/investing/accounts_products/investment/etfs/investor_information

http://www.sipc.org/

2016 etf investor study - charles schwab · in the next few years, will your portfolio have…?...

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