Bruce Bond, chief executive at PowerShares, says that the original research leading up to the launch led the company to believe that it was best to use the premiums to enhance total return. Furthermore, when PowerShares originally looked at the closed-end offerings, it took into account that closed-end funds pay out income because it is a dividend method that helps the funds to support their share price.

That is a market-specific issue for closed-end funds, which have historically moved between wide premiums and discounts, that ETFs don't ordinarily need to consider. It seemed the best option for investors was to invest the income as part of total return enhancement, Bond says.

Now, however, some advisors are stepping forward and telling PowerShares that they would prefer a separate income component. Bond says that ultimately, it is a question of whether advisors and investors want to use PBP first and foremost as an income play or to create a lower correlation asset in the portfolio with a good total return profile.

"We might just have two different camps at end of the day and that's why we need to do more investigation," he said.

From Nussbaum's perspective, one advisor can find himself a member of both camps: "I prefer there to be an income stream on the fund, but the smoother ride is more important to me than the dividend issue. That said, if there were a version of the fund with an income stream, I might switch clients who are older than 50 into that portfolio."

Philippe El-Asmar, head of investor solutions at Barclays Capital, noted that Barclays does have other ETNs that pay income, and that most closed-end BuyWrite funds regularly pay income.

"It may very well be the income aspect, and going forward, there is room for both approaches," El-Asmar said.

The Real Differentiator? 

However, El-Asmar is not yet convinced that the income issue is the real differentiator between the ETFs' lack of success and the closed-end fund asset juggernaut that has seen a relatively large number of assets go into funds with such strategies.

An important distinction between the closed-end fund market and the ETF market is the broker-sold nature of closed-end funds. It may turn out that the lack of success for the BuyWrite strategy in the ETF format has less to do with structure, and more to do with the traditional wire house strength in selling closed-end funds, says El-Asmar.

"Right now, we do see more success in the closed-end funds linked to the BuyWrite strategy, but is it more because of the income structure, or are those closed-end funds more successful because they are sold with a commission by brokers to private clients?" he said.

If it is the latter, and there is no structural fix providing an income stream that can help the BuyWrite ETFs, it may be a longer battle for BuyWrite ETFs to gain acceptance, and assets. "One would expect that investors would like the BuyWrite strategy better without a 3% or 4% commission, but that hasn't happened yet. Maybe it's a matter of education and time," El-Asmar added.

Compounding the problem for Barclays, however, may be the much tougher education and marketing effort now required for the exchange-traded note market, regardless of the specific investment strategy.

ETNs have been abandoned by many investors in the wake of the credit crisis and fears about the unsecured debt nature of the products.

In September, the ETN market had net outflows, and Barclays, in particular, suffered the most as the largest ETN provider (see story here.)

"ETF is the preferable wrapper. It doesn't matter if there is or if there isn't a chance that Barclays goes out of business. In terms of worrying about clients' money, I don't need to think about which to use, and it's PBP," Nussbaum said.

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