2 Conflicts of Interest
ETF's and why some advisors avoid them
Jun/19/08 08:32 AM
Exchange Traded Funds (ETFs) have been around since
1993. They are not a new phenomenon in the financial
world, yet they are often overlooked by many of our
peers (other advisors). Oddly enough one of the Yale
Endowment’s biggest positions is an ETF. ETFs may be
a solid investment because of their low costs, tax
efficiency, and stock-like features, so why hasn't
the Investment Advisory community caught on?
It is not the case that investment professionals are unaware of the benefits of investing in ETFs. Many agree that they are one of the most cutting-edge investment tools in quite some time, however the problem seems to be that there are just too many. Investment Advisors are apprehensive about untested indexes and can be overwhelmed by the number of ETFs available, new and old.
Many Investment Advisors market themselves and pride themselves on the idea that they are able to pick the stocks that will perform best. An index, like one used in an ETF, would devalue the research and intelligence that Advisors believe goes into this stock selection.
Also, and perhaps most importantly, it is difficult to charge high fees when selling products that use an index. Another argument is that more and more young people coming out of business school are staying away from the Investment Advisory business and gravitating towards hedge funds and private equity firms. This would mean that Investment Advisory firms tend to be older and older advisors are more likely not to know or care what ETFs are.
Any way you look at it investment advisors have tended to neglect ETFs even though they can be a very advantageous investment tool and have been an important investment tool for university endowments.
Important Disclosure
It is not the case that investment professionals are unaware of the benefits of investing in ETFs. Many agree that they are one of the most cutting-edge investment tools in quite some time, however the problem seems to be that there are just too many. Investment Advisors are apprehensive about untested indexes and can be overwhelmed by the number of ETFs available, new and old.
Many Investment Advisors market themselves and pride themselves on the idea that they are able to pick the stocks that will perform best. An index, like one used in an ETF, would devalue the research and intelligence that Advisors believe goes into this stock selection.
Also, and perhaps most importantly, it is difficult to charge high fees when selling products that use an index. Another argument is that more and more young people coming out of business school are staying away from the Investment Advisory business and gravitating towards hedge funds and private equity firms. This would mean that Investment Advisory firms tend to be older and older advisors are more likely not to know or care what ETFs are.
Any way you look at it investment advisors have tended to neglect ETFs even though they can be a very advantageous investment tool and have been an important investment tool for university endowments.
Important Disclosure