ETFs Probably Still Confuse Your Clients

Tuesday, December 28, 2010 23:05
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ETFs Probably Still Confuse Your Clients

A significant majority of investors -- both affluent and mass market retail types alike -- still have no idea what exchange-traded funds are or how they work.

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New data from Mintel Comperemedia reveal that a full 60% of all retail market participants avoid ETFs because they don't even know the basics of how these portfolios work.

Even investors who currently own ETFs don’t feel entirely comfortable with their level of knowledge about the products. Only half of them -- maybe 1/2 of the ETF owners, or 21% of the whole survey group -- feel "very" well educated on how these sophisticated mutual fund-like products operate.

While your clients may be familiar with individual stocks or conventional mutual funds, it may be worth mentioning exactly how this asset class works if and when you bring ETFs up in the context of an asset allocation discussion.

ETFs have certain advantages in some situations -- intraday trading and hedging are nice enough -- but the real benefit that they provide is their ability to diversify a portfolio quickly and more cheaply than most traditional funds. Ensuring that your clients know this helps them figure out what you are doing and why it is so important that it continues.

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