Where ETF Industry Falls Short

March 13, 2019

Path To Better Educate

For investors to achieve the best outcomes, ETF education is critical, and something every one of us in the industry needs to take more seriously. That starts with improving ETF knowledge within the industry.

In a recent survey of professional U.S. investors, 13% said they don’t fully understand ETFs, and 17% don’t know how to pick ETFs. We’re talking about institutional investors, financial advisors and fund managers.

 

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Cerulli surveyed financial advisors who currently don’t use ETFs and found the single biggest factor that would drive greater use is more education.

 

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(For a larger view, click on the image above)

 

If people within the financial services industry don’t fully understand ETFs, how can we expect individual investors to appreciate them?

The education gap for industry professionals and individual investors isn’t limited to ETFs. Our country has a significant financial literacy problem. If someone doesn’t understand the basics of personal finance, they simply aren’t going to understand ETFs.

Investment News recently surveyed financial advisors on the topic of financial literacy and found that 78% strongly agree that financial literacy is an issue in our country, but only 41% are doing anything about it.

 

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(For a larger view, click on the image above)

 

Best Outcomes Begin With Education

It’s time to change. Everything. The ETF industry needs to focus education efforts on advisors as well as individual investors.

Investors need help if you want them to learn about your multifactor ETF. Advisors need to focus education efforts on end clients. Put your money where your mouth is.

People have busy lives. It’s great if you can argue on Twitter about stock buybacks, the value factor and quantitative easing. What are you doing to help investors understand the most important building blocks of successful investing?

There’s tremendous opportunity for everyone—the ETF industry, advisors and investors—to improve investment outcomes. It begins with better education.

I could not be more excited about the future of ETFs. To be clear, there are some excellent resources out there. But we can do more. We can do better. Investors still have trillions of dollars in ridiculously pricey annuities, “actively managed” (closet index) mutual funds, hedge funds and other investment products designed to enrich salespeople or fund managers.

That’s opportunity.

Follow Nate Geraci on Twitter @nategeraci.

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