The majority of advisers do not understand the structure of exchange traded funds (ETFs), research suggests.
According to Skandia's latest adviser confidence barometer polling more than 800 advisers, about two-thirds indicated they have little or no understanding of the structure of synthetic ETFs, with over half having little or no comprehension of asset-based ETFs.
In addition, the research found more than 70% of advisers do not have any clients holding ETFs and, of those that do, the overwhelming majority hold just 5% or less of the asset type in their portfolio.
This, said Skandia, illustrates that ETFs remain a niche investment solution suitable for a limited number of clients only.
But it said tracker funds, on the other hand, are becoming increasingly popular. The survey found advisers strongly favour the use of trackers over the likes of ETFs and structured products when utilising passive investments in client portfolios.
The FSA has previously expressed concerns over the complexity of ETFs amid fears advisers and clients lack an understanding of how they work.
"The structure of ETFs can be inherently complicated," said Skandia head of proposition Graham Bentley. "It is therefore understandable that such a significant segment of advisers have little or no understanding of these funds and for the FSA to be concerned about their use in the retail space.
"With a general lack of understanding and increased scrutiny over the use of ETFs it is likely that demand for ETFs will remain limited even after the RDR and our research supports this."
Last week, FundsNetwork announced the launch of a range of 50 physically-backed ETFs on the platform. The addition of ETFs, which have a separate explicit charge, came on the back of the platform launching an unbundled pricing model earlier this year.
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