In 2006 and 2007 combined, just one exchange traded fund closed. But over the next three years, 160 ETFs were liquidated. More are likely to shut down in 2011. That has investors and financial advisors a bit nervous, as the market ponders whether the limits of ETF growth has finally been hit.

Obviously, the big-name, broad-market ETFs are in no danger. But the smaller, niche ETFs that never were able to draw a significant amount of capital are prime candidates, as more companies seem to be rationalizing the number of ETFs they want to market. An ETF that has been around for at least 28 months and has less than $10 million in assets should raise a red flag for advisers, one expert tells Investment News.

Increasingly, companies are pulling the trigger quickly. Northern Trust, for example, closed 17 ETFs last February, just 11 months after launching them. This is a huge issue for financial advisors, many of whom have embraced the product and invested lots of client money. Closing ETFs are likely to hit investors with a termination fee, and the wind-down "can lead to tracking errors." Of course, there's the opportunity costs of having investors' capital tied up. And you look bad recommending something that was later shuttered.

My sense is that RIA firms are going to be more selective up front, blessing only the ETFs that are not in danger. That may make it even more difficult to attract a following in this market.

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