The majority of financial advisers have admitted to having little or no understanding of exchange traded funds, according to Skandia.

The firm’s latest Adviser Confidence Barometer found over two thirds of advisers did not understand synthetic ETFs and over half did not understand asset-based ETFs.

This lack of ETF knowledge meant they were unlikely to recommend them, with less than 30 per cent of advisers having clients holding ETFs.

Of those that did, the majority of clients held less than five per cent of this type of asset in their portfolio.

The Financial Services Authority has already expressed concern about the incorrect use of ETFs and the complexity of certain ETF products.

The issue will become even more important post-RDR as advisers wishing to remain independent will need to show they have considered every type of product for a client.

Graham Bentley, head of proposition, said: “The structure of ETFs can be inherently complicated. It is therefore understandable that such a significant segment of advisers have little or no understanding of these funds and for the FSA to be concerned about their use in the retail space.

“With a general lack of understanding and increased scrutiny over the use of ETFs it is likely that demand for ETFs will remain limited even after the RDR.”

When it came to using passive investments in portfolios, advisers were more in favour of using tracker funds instead which are more cost-effective and simpler to understand than ETFs and structured products.