Along with their explosive growth, however, ETFs evolved in
complexity, structure and usage. Unfortunately for many advisors, their due diligence process vis-a-vis ETFs did not. Too often, they employed the same tools used to evaluate mutual fund and separate account strategies, meaning potentially that they may have been asking the wrong questions.
We believe that financial advisors should establish a customized due diligence process – one that is structured and deliberate in nature. This process should recognize the differences between ETFs and evaluate the potential benefits and risks of each ETF. An advisor’s objective should be to match the philosophy and structure of a given ETF with client needs.
Four vital questions are at the heart of this process: