ETF Growth Creates Need for More Education

June 25th at 3:00pm by Tom Lydon

The need for in-depth, and easy to access exchange traded fund information has never been more important. The business is rapidly growing and the products are constantly morphing, so demand for investor education is strong.

Advisors “need to look under the hood,”  Eric Biegeleisen, director of research at Charles Schwab’s Windhaven Investment Management said during a session at the Morningstar Investment Conference in Chicago on Thursday. “You have to understand why every stock and bond is in there.” [If You Don't Understand How an ETF Works, Don't Buy It]

The logic and process of how an ETF works is imperative to understanding the funds. Investors need to be aware that even though a handful of ETFs are tracking or  aiming at a specific asset class, the performance and outcome can be very different, reports Brett Chase for Financial Planning.

According to Index Universe, new ETF assets were at $119 billion for the year of 2011. Morningstar estimates that mutual funds saw new asset inflows of $58.8 billion over the same time period. The growth in the ETF industry is not stagnating, creating the need for further education in this growing investment platform. [An All-Seasons Model ETF Portfolio]

Further illustrating ETF growth, according to the ETF Industry Association, at the end of May, ETFs accounted for more than $1.14 trillion, an increase of 2% from the month before. There are now 1,465 ETF products trading, up from 1,254 one year ago, reports David Francis for US News.

Financial advisers are the top professionals that need to supply this education and information to their clients. Furthermore, the providers that create and market the ETFs to advisers should make products that are easy to understand, or create ways to explain their products in a language that is clear and simple. [Keeping it Simple with ETFs]

“If we can’t explain to (investors) or the advisors can’t explain to them, it’s not very good,” ThomasFox, co-founder of Quantitative Advantage, said.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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