- Rebecca Rothstein manages $3.8 billion for the ultra-wealthy, and in 2018 she made a big change after by going all-in on exchange-traded funds.
- Rothstein says her firm, RVR Group - which is part of Bank of America Merrill Lynch - now owns about 90% of its stock through ETFs. That's up from 50% at the end of 2017.
- She says clients supported that dramatic change when she explained how the lower fees and tax advantages of ETFs would bolster their returns.
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Twenty years into a successful career managing wealth, Rebecca Rothstein decided it was time for a change.
She had been repeatedly ranked as one of the best US wealth advisors for more than a decade, and last year Forbes named her the top woman in her field. But in early 2018, Rothstein and her firm decided they were going to invest in stocks almost exclusively though exchange-traded funds.
"We are about 90% ETFs now," she told Business Insider in a phone interview. "There are ETFs in almost every asset class. If you want a point of view on interest rates, or you want a point of view on emerging markets, or China, or industrials, or health care, there are multiple ways to go to get that point of view."
California-based RVR manages $3.8 billion in assets for Bank of America Merrill Lynch's private banking and investment group. Over previous few years, Rothstein had ramped up RVR's use of ETFs until they made up about half of its stock portfolio.
"Their expense ratios are very, very small," she said. "And the tax implications of using ETFs vs individual equities or mutual funds is far better."
She's far from alone, as investors have poured trillions into ETFs in recent years. But moving money into ETFs meant a big move away from individual stocks and mutual funds in a short time.
People who manage billions for the wealthy don't like to make dramatic changes. They're focused on the very long term. And, as a group, they're careful about the tax payments that stock sales can trigger. But by early last year Rothstein was convinced that they were by far the best options for her clients.
"The tax implications of using ETFs versus individual equities or mutual funds (are) far better," she said. "Mutual funds pass out ordinary income in capital gains distributions at the end of every year that are uncontrollable. You don't know what they are."
That's critical for her because she works in a high-tax state for clients who are in the top income tax bracket. And as a result, Rothstein says her clients approved of the shakeup.
The appeal of lower fees is obvious, but its effect has been dramatic: Competition for ETF-hungry investors is so intense that providers have cut their fees over and over again, to the point that some are offering no-fee ETFs and at least one company is paying investors a small amount of money for picking its funds.
That made it easier for everyday investors as well as managers like Rothstein to get the returns they want.
"You have much more pleasant phone calls with clients than you when you say 'Oh, I made you 20%, but you've got an 11% tax bill,'" she said. "You get to say 'We made 20% and it's almost all long-term.'"