Financial Planners Aren't Sold on Active ETFs

"This could be a phenomenal tool," says Greg Friedman, head of iShares Product Management Americas, a unit of Barclays (BCS Quote - Cramer on BCS - Stock Picks). "It will be exciting to see the first one, exciting to see where it goes and how it branches out in the ETF world."

A key sticking point is how often actively managed ETFs will disclose their holdings. ETFs that track indices provide daily disclosure. Providers say the Securities and Exchange Commission would like to see similar disclosure for actively managed ETFs. But they are reluctant to be so transparent, because this would make them vulnerable to front-running by investors.

Not surprisingly, index providers are skeptical, because actively managed ETFs would compete with the products they license to track their benchmarks.

"Why does the ETF industry want to go down the path of mutual funds?" says Jerry Moskowitz, president of indexing company FTSE Americas, a unit of Pearson's(PSO Quote - Cramer on PSO - Stock Picks) Financial Times.

Moskowitz says active management will generate higher fees and lower returns, two things that are only going to be more problematic when the outlook for the financial markets is so uncertain.

He says the big push for actively managed ETFs "shows the industry is desperate about running out of product ideas."

David Blitzer, chairman of the index committee at Standard & Poor's, has a similar view. "I think about active ETFs the same way I think about active mutual funds: Index funds perform better."

Blitzer says he has no sympathy for potential issuers concerned about front-running. "We announce the changes to the S&P 500 three to five days ahead ... and active mutual fund managers still can't beat us."