Financial advisors expect to see increased use of exchange-traded funds (ETFs) in client portfolios, while aversion to risk remains high, according to a recently released Invesco Ltd. market study of U.S. registered investment advisors (RIAs).

Invesco’s Toronto-based Canadian subsidiary, Invesco Canada, offers 14 ETFs under the PowerShares Canada brand.

Advisors surveyed believe ETFs will make up 24% of portfolio allocations over the next 12 months and 33% over the next three years, representing a 10% increase over results reported in Invesco’s survey of advisors in 2011.

Against a lingering backdrop of global economic uncertainty, advisors still see clients remaining vigilant in their aversion to risk as 91% believe their clients are more interested in minimizing losses than maximizing gains.

“This year’s study continues to show how financial advisors are embracing the value of ETFs and the many ways they can be implemented in their clients’ portfolios,” says Michael Cooke, head of distribution, PowerShares Canada. “But even as many equity markets have shown signs of strength year to date, advisors are still indicating that risk management is a primary focus and they are looking to a variety of products, including alternative assets, to manage risk.”

The survey also found a growing appetite for complex strategies, such as smart-beta ETFs, but broader adoption will require more education on how these strategies can best serve investors.

“ETF adoption rates in the U.S. have tended to lead those in Canada by several years, suggesting that ETF usage can be expected to continue among Canadian advisors. But this growth in adoption will require education — an area where PowerShares Canada has become a leader,” says Cooke.

With such issues as portfolio allocation and risk management in mind, Invesco Ltd. partnered with Cogent Research LLC to conduct its second blinded study to learn what is top of mind for advisors and their clients given current market conditions.

Among other key findings in the Invesco study:

> Advisors continue to blend active and passive funds in a single portfolio
Forty percent of financial advisors agree that now more than ever they are creating portfolios using a blend of active investment vehicles and passive ETFs. Less than a quarter of advisors use an exclusively all active management portfolio (24%) or an all ETF/passive management portfolio (19%).

> Risk management remains a priority
Consistent with the 2011 survey, advisors cite managing risk as a predominant philosophy in managing client assets (40%). The survey showed wealth preservation as the most important issue for clients, followed by mitigating risk.

> Risk management investment strategies have not changed
Advisors continue to mitigate risk in client portfolios by creating a blended asset allocation of active investments and passively managed ETFs (62%) and applying a more conservative asset allocation (56%).

> Alternatives, emerging market equities and large-cap funds drawing more attention
Within actively managed mutual funds, advisors are most likely to increase capital over the next 12 months in alternatives (46%), emerging market equities (43%) and U.S. large-cap funds (40%).

The RIA Market Research Study was conducted for Invesco Ltd. by Cogent Research in late August and early September 2012. The study is based on a survey of financial advisors around the United States with an average of US$478 million in investable client assets. Cogent Research is not affiliated with nor employed by Invesco.