ETF providers to focus on better educating advisers in coming year

Exchange-traded-fund providers in the coming year will have to focus on making sure financial advisers understand their products — and how to use them in client portfolios — as they anticipate increased scrutiny from regulators and the media, according to participants in today’s ETF round table at InvestmentNews’ New York offices. With retail ownership of ETFs on the rise and more niche ETF products coming to market, educating advisers is becoming essential, said Martha Papariello, a principal with The Vanguard Group Inc. who heads its financial adviser services unit. Specifically, ETF providers want advisers to understand the difference between core ETF products and more niche offerings such as those that short or leverage an underlying index of securities, or commodities-based ETFs, said James Ross, senior managing director at State Street Global Advisors. “ETFs have become a word that encompasses a broad set of products,” he said. While niche products have been subject to scrutiny from regulators and the media, they make up a very small part of the entire business, Mr. Ross explained. For example, leveraged-inverse and commodities products, he estimated, together make up less than 10% of the entire ETF market. SSgA is focusing more on educating advisers about its core ETF offerings,he said. Claymore Securities Inc. is using white papers and webinars to address big-picture issues related to ETFs, said Claymore president Christian Magoon. For example, the firm has published white papers that have focused on best practices in the ETF market as well as on the structure of ETFs. “We are trying to talk to advisers and figure out the context of how they are using ETFs,” Mr. Magoon said.