Advisors Exchange Opinions on Pros and Cons of Active ETFs

Active ETFs have the investment world bustling with excitement and for good reason. After being coined “the next frontier in investor innovation”¹ and hitting the $1 trillion asset milestone in the US last month,² actively managed ETFs are dramatically altering what was traditionally known as a passive landscape with inflows showing no signs of stopping.

With that in mind, advisors were quick to offer their perspective on active ETFs in our first activity fielded via The Advisor Exchange, a new multiclient community from Escalent Group powered by advisor experts at Cogent Syndicated and community experts at C Space. More than eight in ten advisors (87%) we surveyed use active ETFs in their respective practices, albeit to varying degrees. According to current users, the benefits of active ETFs are plentiful, with many producers touting intraday trading and liquidity factors first and foremost.

• “It is awesome to have an investment that acts like a mutual fund and trades like a stock. The best of both worlds.” RIA, $50M–<$100M
• “Similar benefits to active mutual funds except with better liquidity and at a lower cost. Lots of clients are more fee-conscious, so nice way to meet clients where they are.” National, $50M–<$100M

Cost efficiencies and the potential to outperform the index, particularly during periods of market volatility, were commonly emphasized by members of The Advisor Exchange.

• “The primary benefit of using ETFs in our portfolio is their cost efficiency. By leveraging active ETFs we minimize fees while maintaining broad market exposure and factor-based strategies.” Independent, $100M–<$250M
• “Fixed income markets are not as efficient as equity markets. Active managers in the fixed income world actually can and in many cases do outperform.” RIA, $50M–<$100M
• “In times of extreme market volatility, you want a manager to be able to take advantage of price locations that may not last very long.” RIA, $100M–<$250M

Tax advantages are another primary benefit underscored by active ETF proponents.

• “The benefits are huge especially in regard to tax planning.” Regional, $50M–<$100M
• “It allows my nonqualified clients to have active management without the tax liability of an SMA or mutual fund.” Independent, $250M–<$500M

In addition, transparency of holdings and the ability to access a wider range of markets, sectors and strategies serve as other notable advantages of using active ETFs.

• “The benefits of active ETFs are that you can easily gain exposure to different markets, sectors and regions, quickly and inexpensively.” Independent, $50M–<$100M
• “Their structure allows managers to implement strategy and systematically rebalance while preserving transparency, tax efficiency and low costs.” RIA, $500M+

Nevertheless, advisors flagged a number of drawbacks to be mindful of when investing in active ETFs including the pressure to rationalize higher expenses and explain what can be considered as complex investment methodology to clients.

• “One drawback of active ETFs is that their higher fees can be difficult to justify, especially if the fund manager isn’t actively making trades or adjusting the portfolio in a way that adds significant value.” Independent, $100M–<$250M
• “The drawback is definitely the increased cost/expense ratio (based on the provider). I try to explain to clients that active ETFs are a halfway point between an ETF and mutual fund.” Independent, $100M–<$250M
• “The drawbacks are that sometimes their investment methodology could be difficult to understand.” Independent, $50M–<$100M

Other potential downsides of active ETFs include navigating market volatility, loss of automation, risk of human bias and the limited options available in today’s marketplace.

• “I see huge drawbacks if we get the market downturn I’m expecting.” Independent, $50M–<$100M
• “The drawback is you can’t automate a systematic sell in portfolios.” Regional, $500M+
• “I think having qualified analysts looking at the market to see trends helps the fund outperform passive ETFs. However, there’s always human error and bias that can affect changes to the fund.” National, $100M–<$250M
• “There’s not enough of them out there to replicate the mutual funds that I’m currently using.” RIA, $250M–<$500M

In general, enthusiasm for active ETFs and expectations for continued category growth are strong, as more than six in ten advisors (62%) expect to increase their use of and/or exposure to active ETFs in their retail investor client portfolios this year.

• “I imagine continued growth in the active ETF space as investor demand for actively managed strategies within a more liquid and tax-efficient ETF structure increases. While passive ETFs will always dominate in broad market exposure, active ETFs may see growth in niche areas like thematic investing.” Independent, $100M–<$250M
• “I think we’ll see an increase in active ETFs and active investment management in general due to current domestic and global market changes.” RIA, $50M–<$100M

About The Advisor Exchange Community

These insights on active ETFs are a result of a Cogent Syndicated-sponsored activity in our new financial advisor community, The Advisor Exchange. This first-of-its-kind community offers our clients deeper qualitative insights by providing a platform to partner directly with financial advisors across the US in new and unique ways, on clients’ terms, to meet clients’ needs.

The Advisor Exchange includes more than 200 financial advisors representing a variety of firms across the US with assets under management of at least $50 million and gives you the flexibility to conduct innovative research through a curated collection of tools without the need, or cost, of endless vendors, licenses or platforms.

Watch this video to learn more!

¹ “The Year of the Active ETF,” Institutional Investor, March 31, 2025.

² “Active Management Lives On In ETFs After $1 Trillion Asset Haul,” Financial Advisor, March 26, 2025.