This article is the second of our four-part blog series describing the state of the Canadian ETF market from the perspective of MFDA advisors licensed to sell to ETFs. In part one we summarized their views on the pros and cons of using ETFs vs. mutual funds in their clients’ portfolios. This week we lay out their top reasons for offering ETF investing to clients.
But First, Did You Know?
ETFs entered the Canadian investment market more than 30 years ago. However, most MFDA firms to this day have lacked the infrastructure and capabilities needed to facilitate ETF trading. This means that in 2022, the majority of MFDA-licensed advisors still do not have the ability to offer ETFs to their clients.
That said, some dealers have overcome the logistical hurdles and prerequisites associated with selling ETFs, thus giving their advisors an expanded product shelf. To help uncover the advantages of being in the ETF space, we conducted a series of in-depth interviews with MFDA advisors whose firm uses the Univeris platform to sell ETFs. Here are their top four:
Having access to ETFs not only helps to retain clients and attract investors but it also is a way to future-proof an advisor’s book of business. Additionally, being able to offer a complete product shelf to clients or prospects is critical to staying competitive in the wealth advisory space.
What’s more, adding ETFs into the portfolio-construction mix allows MFDA advisors to offer investors the potential for tax efficiency, diversification and lower fees, not to mention remaining competitive within the pricing of a fee-for-service platform.
Generally, index ETFs provide efficient and low-cost exposure to broad asset classes, optimize for risk/return potential and have traditionally provided the exposure at lower cost than a comparable index mutual fund (though the MER gap is closing fast between funds and ETFs).
An investment strategy used by some of the advisors we spoke to is to deploy index ETFs in a client’s portfolio to provide both optimal risk/return capabilities and manage overall risk of the account, and then add higher-risk sector funds or actively managed mutual funds to the portfolio to enhance returns.
For some advisors, trading ETFs fits well with their wealth management philosophy and the approach they take to running their business. Whether it’s the notion that ETFs deliver a better alpha (due to lower fees and different tax logic) or the industry initiatives underway to support ETF awareness and education, advisors are becoming more comfortable at explaining their value proposition with ETFs, especially as the popularity of these products grow and more investors realize their benefits.
Expanding the product shelf with ETFs was also top of mind for all of our polled advisors. If and when their clients ask for ETFs, advisors stressed the importance of being client-driven and having suitable products available to them. That the opportunity is there to respond with additional investment choices to various client needs – whether or not they use ETFs – is considered a competitive advantage for advisors.
Looking for a solution to bring ETF investing to your clients? The Univeris Platform offers MFDA firms and their advisors the ability to trade ETFs. To get access, contact your head office today.