‘Seduced’ ETF investors caught by surprise as prices diverge

‘Complex’ Trades

While Schwab doesn’t raise alerts when customers trade, it has “a robust ETF education offering,” said Erin Montgomery, a spokeswoman. Schwab’s lineup of commission-free ETFs is designed to help investors build long-term holdings, she said.

“All of the ETFs are from well-established providers and we took a close look at AUM, spreads and tracking error when selecting ETFs for the program,” she said. “In addition, Schwab’s trading desk supports advisers and investors with execution of large or more complex ETF trades.”

Cokie Berenyi, whose firm, Red Triangle LLC, in Charleston, South Carolina, manages $40 million, said proper education may be more important than legally mandated fund disclosures, which typically are unhelpful.

“It’s not in plain English,” she said. “It should be understandable, instead of being in language that covers the firm legally.”

State Street Corp., the second-biggest ETF provider, works hard to provide a range of education material to investors directly and to make sure advisers are properly informed, Scott Ebner, global head of ETF product development, said in an interview. He said some responsibility also lies with investors.

“There’s a lot of information out there about the risks of premiums and discounts, and about the risks and opportunities associated with trading in the second market,” he said. “They still have to do the work to understand how it works, how it fits into their portfolio and with their risk preferences.”

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