Efforts to restrict the use of the term exchange traded fund (ETF) in order to prevent complex structured products will be fruitless, a senior director of State Street Global Advisers (SSgA) said yesterday.

Instead, ETF providers should put more emphasis on investor education to prevent the sector from reputation damage as a result of investors taking up unsuitable investments, SSgA senior managing director James Ross said yesterday.

"There has been some discussion about global classification systems. It is really, really challenging to get to that on a global basis, because some of the distinct differences in some of the different product structures," Ross said.

"Trust structures in Hong Kong look different than managed structures here and different than UCITS in Europe and mutual funds in the US.

"I really think it comes down to core education and I don't mean just to make sure that every investor gets a prospectus, because we all know that doesn't always work."

The popularity of ETFs has led to the introduction of complex derivative products, where it is more difficult for the average retail investor to understand all the risks involved.

"In the US we have products called exchange traded notes. The only similarities with exchange traded funds are the first two letters; investors take on the risk of the full balance sheet [of the issuer]," Ross said.

In Australia, the regulators have taken the view that ETFs have the potential to be confusing and ASIC lists them under complex investments in its education material.

"There is no question that the ETF has grown in terms of the type and variety offered in the market place," Ross said.

"[But] I don't necessarily see that as bad. To me the market place will limit it; it is going to speak whether or not it wants certain ETFs in the market place."

But Ross did not think the regulators have gone too far in their assessment of the products.

"I think what they are trying to do is to get better disclosure," he said.

Ross believed that ETF providers needed to make the effort to go out to investors and provide them with information to make better choices.

"It comes down to being really discrete on the education side, to make sure an investor has the information in the hand to make that informed choice," he said.

"An investor needs to make an informed choice in buying anything. There are extremely concentrated managed funds to have a much higher volatility risk than a broad based large cap equity fund."

"Our education has changed over the years from providing information on just our products to include all ETF products. We now speak to investors about synthetic ETFs and we don't even have them."