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Both are ETFs and both trade on an exchange, but they work very differently. A passive ETF tracks an index. An active ETF is run by a manager who decides what to buy and sell.
For fund salespeople, the difference matters because advisors use both, and they judge your strategy against whichever one it replaces. Here is how they differ and what that means for your next meeting.
What Is a Passive ETF?
A passive ETF is built to match an index, such as the S&P 500 or a bond benchmark. It holds the securities in that index, in roughly the same weights, and doesn’t try to beat it.
The appeal is simple: low cost, broad exposure, and no surprises. An advisor who buys a passive ETF knows what they own and what it should do.
What Is an Active ETF?
An active ETF has a portfolio manager making decisions. The manager picks securities, adjusts weights, and tries to outperform a benchmark or deliver a specific outcome, such as income or downside protection.
It uses the same exchange-traded wrapper, so advisors get intraday trading and, in most cases, daily portfolio transparency. What they’re paying for is the manager’s judgment. Morningstar’s 2026 Advisor Deep Dive found that 78% of advisors already use active ETFs (Morningstar, August 2026, 299 U.S. advisors surveyed).
How They Differ
Objective. Passive ETFs aim to match the market. Active ETFs aim to beat it or reach a defined goal.
Cost. Passive ETFs generally cost less because no one is making active decisions. Active ETFs charge more, so the manager has to justify the difference.
Decision-making. In a passive ETF, the index decides. In an active ETF, a manager does, which adds both opportunity and risk.
What the client is buying. Passive is market exposure. Active is a view, a process, or a specific result.
Both share the ETF wrapper, so trading and tax treatment look similar to the advisor. The real difference is what sits inside it.
Dakota Marketplace shows RIA holdings, including ETFs from 13F filings, so you can see who is already in your wrapper before you call. Book a demo to see it in action.
Why Advisors Use Both
Advisors don’t treat this as an either-or choice. Many build portfolios with passive ETFs for broad, low-cost exposure and add active ETFs where they want a manager’s judgment, such as in areas where an index is harder to track or doesn’t deliver the outcome they want.
That means an advisor looking at your active strategy is also asking whether a passive option does the same job for less. Your job is to answer that before they ask.
What This Means for Fund Salespeople
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Know the passive comparison. Find out which index ETF your strategy competes with, because the advisor will.
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Justify the fee. Be ready with one clear sentence on what the manager delivers that an index can’t.
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Describe the role. Tell the advisor where your strategy fits in a portfolio, whether that’s core, a satellite position, or something that fills a gap.
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Show your process. Holdings are visible daily in most active ETFs, so advisors expect you to explain what you own and why.
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Ask what they already hold. An advisor with plenty of passive exposure may be looking for something active, and one who is fully active may want a lower-cost core.
Find the Advisors Who Are Already Buying
Dakota Marketplace covers RIAs and broker-dealer platforms with verified advisor contacts, investment preferences, and ETF, BDC, and closed-end fund holdings from 13F filings.
Filter by:
- RIA AUM and geography
- ETF and closed-end fund holdings from 13F filings
- Broker-dealer platform and advisor contacts
- Investment preferences by strategy and asset class
Know who is buying active and who is buying passive before your first call. Book a demo to see RIA and broker-dealer coverage.
