You may have a client who is looking for a solid explanation of the difference between ETFs and ETNs. As an advisor, one thing you can tell them is that, while exchange-traded notes have their risks, they can also be much more tax-friendly than ETFs.

ETNs do have many of the same characteristics of ETFs, so it’s understandable if clients don’t easily comprehend their differences. For one, ETNs can be redeemed by the issuer just like an ETF. This redemption mechanism is what can give clients comfort that the ETN or ETF won’t stray very far from its value, because a market maker can redeem each at the end of the day for fair value.

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