It’s generally accepted that low costs, transparency and flexibility are all desirable product characteristics.

So why have exchange traded funds (ETFs) made so little headway with UK financial advisers and their clients?

ETFs fulfil the three criteria.

– Their total expense ratio is usually between 40 and 65 basis points and can be lower.

– They are transparent, with funds set up to track a wide range of indices for equities, fixed income and now property and commodities.

– And, they are flexible and can be traded as long as stock markets are open, enabling investors to move in and out of funds freely.

However new consumer research by CoreData Research UK reveals advisers and their clients have a low awareness and little interest in ETFs.

When over 1,000 investors were asked how much they knew about ETFs, two thirds said they knew nothing or very little of their existence – with 40% responding ‘nothing’ and a further 27% stating ‘very little’.

Only 17% pointed to having any knowledge of ETFs.

Unsurprisingly therefore, 30% of consumers said ETFs were unattractive to them and 40% were neutral towards them.

Among financial advisers, only 29% rated ETFs as being a good investment for self invested pension plans (SIPPs) – lower than the ratings given to hedge funds, derivative-based products or commodity funds.

Why are these numbers so low for a product that ticks most of the boxes and is widely used in the US by knowledgeable retail investors?

Two possible reasons spring to mind. One, already acknowledged by ETF providers, is that the product, by virtue of its low costs, does not pay commissions to the intermediaries distributing it.

As the Financial Services Authority has said, incentives, in the form of commissions, affect behaviour and the lack of ETF enthusiasm shows this.

The second could be that many advisers like to have a story for their clients – preferably one about how a particular investment manager runs his fund – ETFs are passive investments, so this is not really possible.

ETFs are ideal for asset allocation purposes and studies show that this is where 90% of investment performance can be gained, but many advisers still see themselves as fund or manager pickers.

Sooner or later ETFs will reach a tipping point in the UK.

As more funds are launched awareness of them will spread, then advisers may have to explain why they are choosing more expensive products ahead of ETFs.

If so, both their business models and investment acumen could come under scrutiny.