Clients are eager to use ETFs, but they don't understand them

Exchange-traded funds are in the right place at the right time, according to the results of an investor survey conducted by The Charles Schwab Corp.
NOV 30, 2011
Exchange-traded funds are in the right place at the right time, according to the results of an investor survey conducted by The Charles Schwab Corp. The research, conducted last month, found that 44% of more than 1,000 individual-investor respondents plan to increase their investment in ETFs over the next 12 months. The survey targeted investors with at least $25,000 in investible assets and a familiarity with ETFs. Just 2% of the respondents said that they plan to decrease their ETF investments. The findings were released Thursday morning in Chicago at the start of the Morningstar Inc. ETF Invest Conference. According to the research, the boom in interest is driven in part by a distinct set of benefits unique to the product. ETF investors identified the biggest benefit as the ability to trade like stocks, while those considering ETFs cited diversification as a top benefit. The survey also uncovered gaps and potential pitfalls that the ETF industry likely will need to address. At the top of the list: 46% of respondents described themselves as “ETF novices.” Indeed, a quarter of all respondents confessed that they don't fully understand the ETF cost structure or how to use them most effectively as part of an investment strategy. Just 8% of ETF owners said that they consider themselves experts on ETFs, and they described the top challenge as being too many choices. “Individual investors are attracted to the efficiency and flexibility of ETFs, but many do not have a solid grasp on how they work,” said Beth Flynn, vice president of ETF platform management at Schwab. According to the survey, cost is the most important factor to investors when choosing an ETF, followed by performance history and reputation of the ETF sponsor firm. “Individual investors are simply not satisfied with their own knowledge of ETFs, and want to learn more,” Ms. Flynn said. “This combination of high investor demand for ETFs with low understanding makes an obvious case for more tools and better education across the investment spectrum.” Email Jeff Benjamin at [email protected]

Latest News

Advisor moves: Atlas tops $1B as Wells Fargo, UBS add bank veterans
Advisor moves: Atlas tops $1B as Wells Fargo, UBS add bank veterans

Wells Fargo adds two bank-channel recruits, UBS lands a JPMorgan Chase veteran, and a multi-family office lifts Atlas past $1B

Advisor mom’s son used her password to log into clients’ accounts, sell deal with conflicts, according to Washington state
Advisor mom’s son used her password to log into clients’ accounts, sell deal with conflicts, according to Washington state

“The state comes down on you in years when you make 40% returns for clients,” said Bill Swayne, the advisor and son of Candace Swayne.

Osaic in talks with Anthropic as AI reshapes advisor workforce
Osaic in talks with Anthropic as AI reshapes advisor workforce

The Independent broker-dealer giant has had “active conversations” with the Claude maker, which is days away from its expected IPO

The retirement milestone advisors aren't tracking
The retirement milestone advisors aren't tracking

For Gen X clients entering life after work, answering the financial question isn't enough to solve the entire retirement equation.

Wealthtech firms target stock pay, pensions and heirs for advisors
Wealthtech firms target stock pay, pensions and heirs for advisors

Tools from Grantd, Income Lab and Healthspan Wealth aim to keep RIAs involved in clients’ biggest money decisions

SPONSORED Best Practices for Engaging Women Around Alternatives

Growing wealth, evolving priorities, and untapped opportunities are reshaping how women approach long-term investing.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.