Earlier this summer at FundForum, we repeatedly heard the same message: financial advisers and wealth managers need more ETF education.
At first, I have to admit the idea struck me as strange—shouldn’t professional money managers know what’s happening as it’s happening?
So, in the spirit of no question is a stupid question, I started asking people what ETF education for the pros actually means. During this process, I imagined a client calling—probably emailing, maybe even texting—their adviser freaked out because “I own too much Nvidia” and the adviser recommending an S&P 500 equal-weight fund or a sector ETF that doesn’t include tech.
It’s akin to a doctor prescribing a drug minus the probing questions.
The act of adding a fund has become more complicated and more important than ever. While it was never a job to be taken lightly, the abundance of choice and the dominance of stock market leaders means advisers not only have more tools but need a robust understanding of which ones to use, with the added stress of why, how, and when.
“Most advisers know what an ETF is. We’re not in 2010 anymore,” says Andrea Acimovic, portfolio strategist at Elston Consulting. “The challenge is that the ETF has gone from being a fairly simple index-tracking vehicle to becoming the Swiss Army knife of asset management where you can put active management, options, factors, thematics, income strategies and increasingly private assets into essentially the same wrapper. From the outside, they all look reassuringly similar. Underneath, they can be completely different animals.”
According to Acimovic, the ETF wrapper can make investors see complicated investments as too simple and straightforward. She thinks the industry “needs to remember that the ticker is the packaging, not the investment thesis.”
That distinction matters more as the menu expands. Arun Subbiah, founder and CEO of Meteor, an AI-powered investment research and portfolio-construction platform, pointed to the sheer pace of new launches and said the education challenge now is less about explaining the wrapper than understanding what increasingly complex products actually do.
“Two ETFs can carry almost the same label and deliver very different exposures underneath,” Subbiah says.
For Subbiah, the biggest knowledge gap sits in index methodology—the construction rules, weighting caps, rebalance schedules and other details that can make two similarly named ETFs behave very differently in a portfolio.
Morningstar’s Jose Garcia Zarate makes essentially the same point from the fund-selection side: “The index represents the strategy one buys into.”
In other words, advisers can understand ETF mechanics perfectly and still choose the wrong fund if the underlying index doesn’t match the client’s objective. Only after that strategic decision does it make sense to compare mechanics, liquidity and implementation between funds tracking similar exposures.
Acimovic puts it more bluntly: “We’ve spent years asking, ‘How cheap is it?’ I think the better question now is, ‘What am I hiring it to do?’”
This brings us back to the question we started with. And the answer I landed on is that “education” might be the wrong way to frame the need. The central focus of money managers must shift from what something is to connecting three things we can no longer consider separately: the client’s objective, the strategy the fund sets out to execute and how that strategy might behave alongside the other pieces of the portfolio. Garcia Zarate’s sequence is key—first match the client’s goals to the appropriate strategies; only then compare the ETFs available to implement them.
Put another way, ETF literacy for advisers is about reasoning backwards from the desired outcome, not necessarily starting with an ETF.
