With the securities firms forever searching for edgy products, it should come as little surprise that exchange-traded-fund (ETF) wrap accounts are growing in popularity.

ETF wraps, which are less expensive than mutual funds, are seen by many as a logical next step for an industry spooked by scandal and hoping to be as transparent as possible.

This is not necessarily good news for advisors. The fact that the ETF products are cheaper than traditional mutual funds makes them more appealing to investors, but the savings go to them, not to brokers.

“It's a strange situation — once I understood these, I saw how well they can work for people,” says one A.G. Edwards rep. “But pricingwise, it is a little less for me, I'll confess.”

This fact is unlikely to hinder the spread of ETF wraps' popularity.

“It's definitely the way the trends are going,” says J. Parsons, managing director of Barclays Global Investors. “Every brokerage firm we're working with is in the process of building an ETF wrap program.”

Many credit that to the transparency of ETF wraps, which allow investors to see clearly the value added to their investments in a fixed fashion. ETF wraps have the added advantage of being a product untainted by scandal and unrestricted by the resulting regulatory backlash.

An executive at Raymond James, which is planning to launch an ETF wrap program by the end of the year, says ETF wraps are appealing because they allow the firm to control costs without using outside asset managers.

More wirehouse and large regional firms are jumping on the ETF wrap train — Merrill Lynch is rumored to be putting their own program together. The generally accepted leaders in the field have been Morgan Stanley and A.G. Edwards, which was the first major firm to start a program, in 2001.

“No one's quite where they're at yet,” says Parsons.

Barclays offers ETF wrap products and has noticed a distinct ratcheting up in interest from firms in recent months.

“When we look at some of the larger firms we work with, we estimate about half of our assets come from this kind of fee-wrap, and about half come from traditional transactions,” Parsons says.