“ETFs are commonly perceived to be simple, low-cost tools for tracking well-established indices, but recently more complex structures have emerged,” says Aldous, who believes not all clients are being made aware of the differences between simple and more complex products by providers.

Aldous adds that simple ETFs are essentially UCITs III funds, with the same protections as unit trusts, while complex ETFs can use leverage, sell short, track illiquid underlying assets or use active management techniques - all of which add unexpected risk. In addition, some ETFs do not hold proper collateral to secure clients’ initial investments.

Evercore Pan-Asset is calling for complex ETFs to be clearly labelled to inform investors of differences in structure. The firm already classifies its own products as either “simple” or “complex” and would like to see its approach adopted across the industry.