2016 ETF Investor Study. September 2016

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1 2016 ETF Investor Study September 2016

2 Table of Contents 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

3 About the Study What When 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. The RIA survey was fielded June 29 to July 20, 2016 The ETF Investor survey was fielded June 28 to July 15, 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 Who 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 4

5 Investing Game-Changers: most investors and RIAs believe ETFs have had a positive impact on how they invest Impact ETFs Have Had on The way you invest your money The way you invest in the portfolios you manage 17% A substantial positive impact A substantial positive impact 44% Positive impact (net) = 76% 59% A moderate positive impact Positive impact (net) = 92% A moderate positive impact 48% 21% 3% ETF Investors No impact A negative impact 7% 1% No impact A negative impact RIAs 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) 5

6 Individual investors continue to make strides in their understanding and confidence around ETFs. How ETF Knowledge Has Changed in Past Year More confused now 1% Never fully understood them 3% Confidence in Ability to Choose the Right ETF 28% Extremely confident Stayed about the same 52% Know more now 44% Confident (net) = 90% 62% Somewhat confident ETF Investors Especially among Millennials (64%) and Gen X (51%), compared to Boomers (37%) 10% Not at all confident 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

7 On average, 1/3 of RIAs investments are in ETFs and they expect that to increase in the years ahead Percentage of Portfolio in ETFs Don t know 0% 1-9% 10-24% 25-49% 50-74% % ETF Investors 1-24% (net)=66% % (net)=28% Currently 4% 4% 30% 36% 15% 7% 6% MEAN 22.5% In 5 Years 1-24% (net)=55% % (net)=37% 7% 2% 19% 36% 19% 12% 6% 28.7% +6.2 RIAs Currently In 5 Years 1-24% (net)=46% % (net)=49% 1% 4% 24% 22% 21% 15% 13% 10-49% (net)=34% % (net)=61% 3% 2% 8% 26% 20% 22% 19% MEAN 33.9% 44.4% 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) 7

8 More than half of RIAs and 44% of investors have increased their investments in ETFs in the past year Change in Investments in Past Year In your investments For investment of assets you manage 10% Significantly increased ETFs 12% Significantly increased ETFs Increased ETFs (net) = 44% 34% Moderately increased ETFs Increased ETFs (net) = 52% 40% Moderately increased ETFs 45% Kept ETFs the same 40% Kept ETFs the same 4% 4% 3% ETF Investors Moderately decreased ETFs Significantly decreased ETFs None/Don t know 5% 3% Moderately decreased ETFs Significantly decreased ETFs None/Don t know RIAs 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) 8

9 and just over half of RIAs and two in five investors plan to increase their ETF investments in the next year Expected behavior in the next year In your investments For investment of assets you manage 8% Significantly increase ETFs 9% Significantly increase ETFs Increase ETFs (net) = 43% 35% Moderately increase ETFs Increase ETFs (net) = 54% 45% Moderately increase ETFs 45% Keep ETFs the same 40% Keep ETFs the same 3% 1% 8% ETF Investors Moderately decrease ETFs Significantly decrease ETFs None/Don t know 2% 1% 3% Moderately decrease ETFs Significantly decrease ETFs None/Don t know RIAs 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) 9

10 Nearly half of RIAs and more than one in four investors expect ETFs to be their primary investment in the future Those who see ETFs as the primary investment type in the future In your portfolio For the assets you manage Not sure 18% Yes 28% Not sure 15% Yes 48% No 37% No 54% ETF Investors RIAs 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) 10

11 The $100,000 Question: with an extra $100K to invest, RIAs would put an average of $43.6K into ETFs Percent of $100,000 Would Invest in ETFs 0% 1-24% 25-49% 50-74% 75-99% 100% ETF Investors If you had another $100,000 to invest 1-49% (net)=64% % (net)=28% 5% 36% 28% 20% 7% 4% MEAN 37.3% RIAs If a client had another $100,000 to invest 1-49% (net)=51% % (net)=43% 6% 33% 18% 21% 16% 6% MEAN 43.6% 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) 11

12 The role ETFs play in a portfolio 12

13 ETFs: A scalpel or a hammer? If ETFs Were a Tool, They d Be More Like Neither 14% A hammer 16% A blunt instrument for broad market access Neither 8% A hammer 23% A blunt instrument for broad market access Both 35% A scalpel 35% A precision instrument for accessing niche segments of the market Both 55% A scalpel 14% A precision instrument for accessing niche segments of the market ETF Investors RIAs Q23. If ETFs were a tool, would they be more like? (Base: ETF Investors=1,008; RIAs=312) 13

14 Both RIAs and investors say that the #1 way they use ETFs is for broad equities market exposure How ETFs Are Used In your portfolio Within the portfolios you manage For broad equities market exposure 39% For broad equities market exposure 81% For sector exposure 37% For international equities exposure 59% For exposure to targeted segments of the equities market 36% For emerging markets exposure 55% For emerging markets exposure 26% For sector exposure 50% For exposure to targeted segments of the fixed income market 24% For broad bond/fixed income market exposure 48% For broad bond/fixed income market exposure 23% For exposure to targeted segments of the equities market 45% For international equities exposure 23% For exposure to targeted segments of the fixed income market 44% For commodities exposure 21% For commodities exposure 38% For international fixed income/bond market exposure 12% For international fixed income/bond market exposure 31% ETF Investors RIAs 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

15 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 Use of ETFs in Place of Stocks/Bonds In your portfolio: For assets managed: 31% 25% 65% 59% Yes 43% 46% No 13% 17% Not sure 22% 24% 26% 29% 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 ETF Investors RIAs 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) 15

16 Half of those surveyed say ETFs and mutual funds play an equally important role in a portfolio Roles of ETFs and Mutual Funds In helping me reach my investments goals In helping to reach my clients investment goals Both equally 49% ETFs help better 32% Both equally 56% ETFs help better 36% Mutual funds help better 19% Mutual funds help better 8% 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% ETF Investors RIAs 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

17 Evaluating ETFs 17

18 RIAs say low expense ratio, total cost and liquidity/trading volume are extremely important when evaluating an ETF Importance When Choosing an ETF Extremely important Somewhat important Not at all important Don't know Low expense ratio 79% 20% 1% 0% Total cost 77% 22% 1% 0% Liquidity/trading volume of the ETF 72% 24% 3% 1% How well it tracks to its index 65% 31% 3% 1% Access/exposure to a specific part of the market 61% 33% 5% 1% Trades commission-free 38% 42% 20% Historical returns of the ETF 28% 57% 15% Total assets in the ETF 26% 64% 9% 1% ETF provider 21% 60% 18% 1% Morningstar rating 16% 47% 35% 2% RIAs Q24. When choosing an ETF, how important to you is each of the following? (Base: RIAs=312) 18

19 Individual investors prioritize low expense ratio, total cost and how well ETF tracks to its index when evaluating an ETF Importance When Choosing an ETF Extremely important Somewhat important Not at all important Don't know Low expense ratio 63% 32% 3% 2% Total cost 63% 31% 4% 2% How well it tracks to its index 50% 41% 5% 4% Trades commission-free 48% 41% 9% 2% Access/exposure to a specific part of the market 47% 44% 6% 3% Historical returns of the ETF 42% 50% 5% 3% Liquidity/trading volume of the ETF 42% 44% 10% 4% Total assets in the ETF 33% 51% 12% 4% ETF provider 33% 51% 12% 4% Morningstar rating 31% 52% 12% 5% ETF Investors Q27. When choosing an ETF, how important to you is each of the following? (Base: ETF Investors=1,008) 19

20 Expense ratio is the most important ETF cost criterion for both RIAs and individual investors Importance When Evaluating the Cost of a Specific ETF ETF Investors Extremely important Somewhat important Not at all important Don't know Expense ratio 63% 31% 3% 3% Trade commission 49% 42% 7% 2% Premium and discount pricing 37% 49% 7% 7% Bid/ask spread 31% 51% 10% 8% RIAs Expense ratio 82% 15% 3% Bid/ask spread 51% 43% 4% 2% Premium and discount pricing 41% 49% 7% 3% Trade commission 37% 44% 19% 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

21 Nearly half of individual investors say that the ability to trade an ETF commission-free is extremely important Importance of Ability to Trade ETFs without Commissions or Other Brokerage Fees Most important/ver y important (net)=47% 17% 30% Most important, I would move my account to a brokerage firm that offers commissionfree ETFs Very important, I only invest in commission-free ETFs at my brokerage firm Most important/ver y important (net)=30% 11% 19% Most important, I would move my account to a brokerage firm that offers commissionfree ETFs Very important, I only invest in commission-free ETFs at my brokerage firm 40% Somewhat important, it is not the only factor that I consider in my buying decision 45% Somewhat important, it is not the only factor that I consider in my buying decision 8% 2% 3% Not as important as other factors Not important at all Don t know 20% 4% 1% Not as important as other factors Not important at all Don t know ETF Investors RIAs Q29/Q26. How important is the ability to trade ETFs without commissions or other brokerage firm fees? (Base: ETF Investors=1,008; RIAs=312) 21

22 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 Importance When Evaluating Brokerages That Offer Commission-Free ETFs ETF Investors Extremely important Somewhat important Not at all important Don't know Broad selection of ETF categories 52% 40% 5% 3% No additional fees (short-term redemption fees) 51% 39% 7% 3% Choice of commission-free ETFs within category 41% 48% 8% 3% The right selection of ETFs 41% 37% 11% 11% Broad selection of ETF providers 39% 49% 8% 4% The most number of commission-free ETFs 31% 50% 15% 4% RIAs The right selection of ETFs 72% 23% 4% 1% Broad selection of ETF categories 56% 37% 6% 1% Broad selection of ETF providers 51% 40% 8% 1% No additional fees (short-term redemption fees) 43% 43% 13% 1% Choice of commission-free ETFs within category 41% 43% 15% 1% The most number of commission-free ETFs 24% 44% 30% 2% 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

23 Researching ETFs 23

24 RIAs most often use 3 rd party analysis or ETF provider websites when researching ETFs Sources Used for Researching ETFs Currently use Don't currently use Don't use - would like to 3rd party analysis/ratings 88% 9% 3% ETF provider website 86% 12% 2% Financial media 65% 33% 2% Prospectus 65% 32% 3% Investment literature 50% 45% 5% Brokerage firm's website/tools 48% 47% 5% Industry events and speakers 46% 46% 8% Online classes or webinars 33% 62% 5% Stock exchange website 19% 76% 5% Regulatory organizations 19% 77% 4% Short videos or tutorials 16% 74% 10% RIAs Q10. Which sources do you use when doing research to choose an ETF? (Base: RIAs=312) 24

25 Two-thirds of RIAs look to ETF providers for guidance on ETFs; the quality of guidance is rated excellent or good ETF Providers Used for Guidance Quality of Guidance Received (among those who turn to ETF Providers for guidance) Not sure 6% 19% Excellent No 28% Yes 66% 62% Good Adequate 19% RIAs 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

26 Two-thirds of investors use their brokerage firm s website when researching ETFs Sources Used for Researching ETFs Curently use Don't currently use Don't use - would like to Brokerage firm's website/tools 66% 28% 6% 3rd party analysis/ratings 55% 36% 9% Financial media 54% 39% 7% Financial professional 49% 44% 7% ETF provider website 45% 45% 10% Prospectus 42% 49% 9% Investing website 38% 51% 11% Stock exchange website 30% 62% 8% Referrals / recommendations 27% 66% 7% Investment literature 26% 65% 9% Short videos or tutorials 18% 70% 12% Online classes or webinars 16% 69% 15% Regulatory organizations 13% 77% 10% In-person group classes with instructor 9% 79% 12% Robo-advice or automated portfolio builder 9% 80% 11% ETF Investors Q14. Which sources do you use when doing research to choose an ETF? (Base: ETF Investors=1,008) 26

27 Respondent Profiles 27

28 Three in four RIAs surveyed have traded ETFs in the past month; half of investors surveyed have traded ETFs in the past quarter Last time Bought or Sold ETFs Personally bought/sold Bought/sold for accounts managed 32% Past month Past month to 3 months (net) = 54% 22% Past 3 months Past month to 3 months (net) = 87% 76% Past month 14% Past 6 months 32% 11% Past 3 months ETF Investors Past year or longer 4% 8% 1% Past 6 months Past year or longer Prefer not to answer RIAs 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) 28

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

30 RIA Profile 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 Assets Under Management RIAs (n=312) <$50M 45% $50M-$149.9M 18% $150M-$249.9M 10% $250M-$499.9M 10% $500M+ 15% Mean (in thousands) $239.3M 30

31 Focus on Investors: By Generation 31

32 Focus On Investors: Generations Millennials a (n=163) Gen X b (n=193) Investors: Generations Boomers c (n=505) Matures d (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 Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown. 32

33 Focus On Investors: Generations Millennials a (n=163) Gen X b (n=193) Investors: Generations Boomers c (n=505) Matures d (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% Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown. 33

34 Focus On Investors: Generations Millennials a (n=163) Investors: Generations Gen X b (n=193) Boomers c (n=505) Matures d (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 Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown. 34

35 Focus On Investors: Generations Millennials a (n=163) Investors: Generations Gen X b (n=193) Boomers c (n=505) Matures d (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 Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown. 35

36 Focus On Investors: Generations Millennials a (n=163) Investors: Generations Gen X b (n=193) Boomers c (n=505) Matures d (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% Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown. 36

37 Focus On Investors: Generations Investors: Generations Millennials a (n=163) Gen X b (n=193) Boomers c (n=505) Matures d (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% Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown. 37

38 Focus On Investors: Generations Millennials a (n=163) Investors: Generations Gen X b (n=193) Boomers c (n=505) Matures d (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% Letter notations indicate statistically significant differences at the 95% confidence level. Only significant difference of +/-5% or more are shown. 38

39 Focus on RIAs: By Generation 39

40 Focus On RIAs: By Generation Millennials a (n=58) RIAs: Generations* Gen X b (n=134) Boomers c (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% * 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

41 Focus On RIAs: By Generation Millennials a (n=58) RIAs: Generations* Gen X b (n=134) Boomers c (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% * 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. 41

42 Focus On RIAs: By Generation Millennials a (n=58) RIAs: Generations* Gen X b (n=134) Boomers c (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% * 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. 42

43 Focus On RIAs: By Generation Millennials a (n=58) RIAs: Generations* Gen X b (n=134) Boomers c (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% * 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. 43

44 Focus On RIAs: By Generation Millennials a (n=58) RIAs: Generations* Gen X b (n=134) Boomers c (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% * 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. 44

45 Focus On RIAs: By Generation RIAs: Generations* Millennials a (n=58) Gen X b (n=134) Boomers c (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% * 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. 45

46 Focus On RIAs: By Generation Millennials a (n=58) RIAs: Generations* Gen X b (n=134) Boomers c (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% 46

47 Disclosures 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 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) Charles Schwab & Co., Inc. (Member SIPC) All rights reserved. (0916-L9TS)

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