Proposed ETF council gets mixed early reviews

Exchange-traded-fund providers said last week that they are willing to consider joining a proposed ETF trade organization, but only if it could prove its value. “The bottom line is, we're interested in having an entity represent the ETF industry as strongly as it can be represented,” said William H. Belden III, managing director of ETFs at Claymore Securities Inc. “The question is: How best do we get there?” Irving L. Straus, chairman of Straus Corporate Communications, thinks that the best course is through the creation of a non-profit ETF council, which he hopes to announce next month. “At this juncture, the ETF industry needs to have its own home base,” said Mr. Straus, who is also the founder of the No-Load Mutual Fund Association (now the Mutual Fund Education Alliance). A number of leading ETF providers have agreed to become members of the organization, though he declined to identify them, because he said that they haven't given him permission to reveal their names. An ETF council is an interesting idea, said Mr. Belden, who added that Mr. Straus hasn't contacted him. “I think we're willing to talk and learn a little bit more about it,” Mr. Belden said. But he said that he is skeptical that such an organization would add much value. Currently, the Investment Company Institute, the mutual fund industry trade group, represents ETF providers. “I think that the ICI has done a good job,” said Mr. Belden, a member of the ICI's ETF committee. “It remains to be seen whether a different entity is necessary.” Because the ICI focuses primarily on mutual funds, however, it won't be a proactive marketer of the ETF business, Mr. Straus said. Andy O'Rourke, a senior vice president and marketing director of Direxion Funds, agrees. “I think to some degree, that's fair,” he said. But Mr. O'Rourke, whose firm specializes in leveraged and inverse ETFs, said the ICI was quick to say that the Financial Industry Regulatory Authority Inc. overstepped its authority when it warned brokers last year that such ETFs “typically are unsuitable for retail investors.” As a result, Mr. O'Rourke, who also said Mr. Straus hasn't contacted him, is unsure of the need for an ETF-only trade organization. “I'd say there's a lot more we needed to know,” Mr. O'Rourke said. E-mail David Hoffman at [email protected].