Papering Over The Problem
Source: http://www.indexuniverse.com/blog/6002-papering-over-the-problem.html?Itemid=3&utm_source=straightstocks.com&utm_medium=sidebar&utm_campaign=rssPosted on Tuesday, June 16th, 2009 | In Exchange Traded Funds, Market Commentary
If you think changing a letter from ETF to ETP will solve this problem, Jim, you’re out of your mind.
The issues we are dealing with do not revolve around word choice. They revolve around whether or not investors understand the products they’re allowed to buy.
You want to call them ETPs or structured products? Fine. That might help, particularly if you push for the more-stringent “structured products.” I personally think that term would work well for geared ETFs, and is less appropriate for commodities. But in general it’s probably a good idea, and I think I’d join you in that campaign.
The problem is, I don’t think it would solve the problem. The cat is out of the bag on these products. People are not going to stop buying USO, FAZ or SSO just because we call them structured products. (Heck, plenty of people buy junk bonds; a name only goes so far.)
The real solution is education, and there are some very obvious steps to take here.
Take, for example, the Series 7 Exam, administered by FINRA. This is the basic exam that registered reps needs to pass before they can start making recommendations. Here’s how Investopedia defines the exam:
This exam … provides an individual with the qualifications necessary in order to make different types of trades with all types of corporate securities, excluding commodities and futures.
The bolding is mine.
This exam is a vestige of an era when individuals did not have easy access to commodities or futures. The words commodities, contango and backwardation do not appear in the content guide for the exam.
FINRA has a second exam called the Series 3 exam that candidates must pass before they can make commodity recommendations. Can reps recommend USO without passing the Series 3 qualification? They probably shouldn’t.
So sure, let’s change the name. But let’s do more than that. Let’s require some real education to help investors understand the tools they have at their fingertips.
Last 5 posts by Matt Hougan
- Long-Term Treasury Shorts? - July 16th, 2009
- Home Prices In 2014? Dead Flat From Here - June 30th, 2009
- What's Wrong With ETFs - June 15th, 2009
- A (Popular) ETF Down 97%??? - June 4th, 2009
- Poppycock, Wiandt - June 2nd, 2009
 About Matt Hougan (http://www.indexuniverse.com/sections/blog.html)
Matt Hougan is senior editor of the Journal of Indexes, editor of IndexUniverse.com and a contributing writer for the Exchange-Traded Funds Report and Financial Advisor magazine. Prior to joining JoI, Matt directed the internal communications effort at Genzyme Corporation, and worked as a biotech analyst and journalist for the award-winning financial Web site MetaMarkets.com. Hougan, a 1998 graduate of Bowdoin College, lives on the coast of Maine. |
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