Leveraged ETFs Cut by Edward Jones

It is important to remember that "ETFs" have spent more than a decade establishing themselves as transparent, low-cost products. New, exotic, high-cost ETF strategies are masquerading as approachable funds and could dupe investors. Both FINRA and the Massachusetts attorney general have recently made headlines highlighting the potentially dangerous nature of the funds.

Schwab(SCHW), whose "asset management and administration" unit accounted for a whopping 46% of revenue, recently announced that it would be offering its own line of proprietary ETFs in the near future.

This move could be a reoccurring theme in the asset management universe, as beaten-down investors clamor for transparent, cheaper alternatives for their portfolio

Schwab will not begin its ETF line with a "Schwab 10x Short S&P" ETF, but rather more traditional products. Investors must keep their eyes open, however, as the industry moves forward. Quite simply, more complicated ETFs command higher fees and benefit sophisticated traders on the other side of the transaction.

During the housing meltdown, unwitting investors bought AAA rated securities that were comprised of complicated, inappropriate investment instruments. Haven't we learned our lesson? Brokers, dealers and issuers need to stop categorizing complex products alongside viable long-term investment strategies before ETFs become more entrenched into recovering 401-k portfolios.

ETF products should be categorized depending on their strategy. A fund that tracks a regular basket of domestic equities should not be viewed in the same category as a fund that tracks swaps and futures contracts. Traditional ETFs should be separated from non-traditional ETF products such as leveraged funds, ETNs and futures-based commodity funds like United States Oil (USO) and United States Natural Gas (UNG).

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