Exchange traded fund investors know that the financial products are cheap, efficient and easy-to-use investment tools. However, the general public, and even some advisors, still do not understand how ETFs work, according to a recent report.
ETFs are like mutual funds in that they hold a pool of assets, but anyone may trade ETFs intra-day on a stock exchange, writes Daisy Maxey at MarketWatch.
Still, this type of investment tool has not caught on with many individuals, including advisors. Paul Ingersoll, managing partner of Good Harbor Financial, which oversees separately managed accounts of ETFs for advisors, stated that many advisors don’t fully understand the ETF product. [Growing ETF Complexity Seen Damaging Business]
“We spend a lot of time with otherwise sophisticated investors giving them ETF 101,” Ingersoll said in the report.
Skip Motsenbocker, a managing partner at SignalPoint Asset Management LLC., which also oversees separately managed accounts with ETFs for advisors, commented on the need for further education.
“There is so much more education that needs to be done about what an ETF is even among advisers – forget about individual investors,” Motsenbocker said.
Last week, a Senate subcommittee looked into derivatives-based, leveraged and inverse ETFs. Industry leaders, including Noel Archard, managing director of BlackRock‘s (NYSE: BLK) iShares, feel that clients and traders need to be more educated about the products’ investment and structural risks. [Previewing the Senate Subcommittee Hearing on ETFs]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.