Bestinvest is looking to develop a rating system for exchange-traded funds to allow clients to more easily compare the products.
The wealth manager currently rates funds and ETFs with a one to five star rating system and is considering developing a different system for ETFs.
The ratings will look at factors such as liquidity, counterparty risk, tracking error, collateralisation, transparency of collateral and indemnification.
Bestinvest senior analyst Ben Seager-Scott says to meet the minimum requirements to receive a rating, ETFs will need to have UK reporting status, be Ucits III compliant, domiciled in Europe and listed on the London Stock Exchange.
Seager-Scott says: “We are developing a framework for rating ETFs. When investors buy exchange traded products on a platform, they do not have a rating and it would be beneficial for investors. Not all ETFs are equal and we can show that.”
Yellowtail Financial Planning managing director Dennis Hall says: “The ETF market has evolved and become more sophisticated. It would be useful for investors to have a external rating system as there are some risks with ETFs that are not immediately apparent.”