Hedge funds were perforated by the financial  debacle, leaking billions of dollars in assets. But industry leaders are looking into exchange traded fund (ETF) as a way to pick up the loose change.

Barclays Wealth is offering a program that uses active managers who allocate clients’ money into a variety of passive index-based ETFs, writes Aaron Pressman for Reuters. By using ETFs, participants are able to use an investment vehicle that has better diversification and greater liquidity. (Mutual funds want in on ETFs). So far, Barclays is one of the largest firms to offer such a program, but there are others introducing them at a fast rate.

The proliferation of ETFs, along with the poor performance of high-priced money managers of last year, has many investors turning to the simpler yet diversified investment product. According to research firm HedgeFund.net, investors pulled $800 billion out of hedge funds and similar investments between July 1, 2008 and June 30, 2009.

ETFs may not be a magic bullet, though. Some investors may be disappointed if the firms’ asset allocation models don’t work as expected, and the programs may have to fight for assets if wealthy clients continue to gravitate toward private money managers. (How ETFs will overtake mutual funds).

For brokers, it was exciting to be able to present hedge fund opportunities to clients, but in most cases, it brought pains instead of gains. Today, investors are looking for transparency, low fees and tax efficiency. They don’t want surprises. ETFs give them what they’re looking for. The big question now is how will brokers justify their large fees?

For more information on fund providers, visit our mutual funds category.

Max Chen 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.