A recent study by Broadridge Financial Solutions shows the decades-long shift away from mutual funds continues across both retail and institutional investors, according to planadviser  – with clear implications for how advisors can align their services to better meet client needs.

Broadridge analyzed the activity of over 40 million U.S. individual investors across mutual funds, ETFs and individual equities. For the first time, mutual funds (38%) fell below individual stock holdings (39%), while ETF ownership climbed to 23% of assets.

“The mutual fund space has long-term threats – there’s no disguising the decline,” said Andrew Guillette, VP of global insights at Broadridge. “Mutual funds used to be over half of investments in 2018, and now they’re below equities. That shift has been rather dramatic, especially among younger generations.”

The shift is partly driven by the lower costs and tax efficiency of ETFs. But Guillette cited the rise of personalized solutions like separately managed accounts, model portfolios and direct indexing as major factor advisors are utilizing to better customize client portfolios.

Broadridge’s study revealed varying mutual fund ownership across age cohorts. At 39%, Baby Boomers hold the highest percentage of their assets in mutual funds, with Gen X at 37%, Millennials at 36% and Gen Z at 37%. The younger generations allocated more to ETFs compared to Boomers.

In the defined contribution space, collective investment trusts (CITs), with their lower costs and fewer regulations, have made major inroads for target-date investing compared to mutual funds. As of March, Morningstar data showed CITs representing 49% of the in-plan target-date fund market.

Data from Simfund highlighted consistent net outflows from long-term mutual funds, with 2024 seeing around $38 billion in outflows year-to-date as of April. The largest outflow was $41.9 billion in April alone, though a $15.7 billion inflow in February showed demand remains.

While the decline appears irreversible for now, Broadridge’s report underscores the need for asset managers and advisors to continue evolving and personalizing their offerings to align with changing investor preferences across all demographics.

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