From the November 2007 issue of Investment Advisor • Subscribe!

ETF Education

The industry has fallen short in informing investors about exchange-traded funds (ETF), according to a Rydex survey of 500 mutual fund investors conducted in July. In fact, more than a third (38%) of individual investors do not know what an ETF is, and more than half (53%) do not know the difference between an ETF and a mutual fund. Additionally, 63% of investors indicated that their main reason for not investing in ETFs is because they don't know enough about them. The good news is that despite a lack of awareness, investors showed an interest in learning about ETFs. More than a third (35%) of individual investors said they would like to learn more about ETFs, and among those investors who work with financial professionals, 40% would like more information. Also, about half (51%) of individual investors would consider investing in ETFs if their advisor suggested it.

Furthermore, while close to half (47%) of advisors rate themselves as "extremely knowledgeable" about ETFs, only 10% of investors rate themselves as "extremely knowledgeable," suggesting a gap between what advisors know and what they are sharing with their clients. Younger investors, in particular, should be advisors' target ETF audience, as they are more receptive to ETFs--almost 80% of investors younger than age 30 would invest in ETFs if their investment advisor suggested it, according to the survey. Finally, there does not seem to be a connection between investors' wealth range and their knowledge of ETFs. The percentage of investors who don't know the difference between ETFs and mutual funds is about the same among investors with investable assets of more than $500,000 and those with investable assets of between $100,000 and $500,000.

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