NEW YORK (MainStreet) — Investment advisors are looking to expand their use of "wrap" accounts – managed advisory accounts that charge a fee – especially when it comes to exchange-traded funds. In fact, according to a study by Market Strategies International, all types of managed money solutions used by fee-based advisors are expected to grow over the next two years, but ETF-managed accounts are expected to be the go-to solution.

ETFs are replacing mutual funds in these advisor-recommended accounts. Fee-based financial consultants surveyed say they expect to increase their use of ETF advisory/wrap accounts (23%) – a rate three times greater than advisors who plan to increase their use of mutual fund advisory/wrap accounts (7%).

More than three quarters (76%) of fee-based advisors now use some type of managed account solution within their practice -- accounting for an average of 61% of their total assets under management.

Mutual fund wrap programs and advisor-driven models are currently the most widely implemented fee-based advisory programs, but the survey reveals the growth for these two platforms will decrease significantly over the next two years. Nearly one quarter (24%) of fee-based advisors plan to expand their use of ETF wrap accounts.

"From a practical standpoint, the use of ETF wrap accounts is still relatively new, but considering the tremendous demand for ETF products there is certainly room for growth," said Meredith Lloyd Rice, senior product director and author of the study. "The proliferation of ETF products and investment strategies make building a managed solution around these products quite attractive to advisors, especially as they become more comfortable with ETFs in general. However, in today's fee conscious environment, advisors and providers alike will have to monitor the 'all-in' ETF wrap account cost given a penchant for lower expenses among advisors and investors."

Wrap accounts charge a quarterly or annual fee for asset management, rather than commissions on trades.

--Written by Hal M. Bundrick for MainStreet