The Canadian ETF Association (CETFA) recently completed research on advisors with CREDO Consulting. Before we present the full results, we wanted to share some surprising responses to the question: Why are advisors not currently using ETFs in their client portfolios?
Here are five of the answers advisors provided and our response to each.
MFDA advisors lack access to ETFs
We have worked with the Federation of Mutual Fund Dealers Association for the last five years to ensure that access to ETFs is available to as many MFDA advisors as possible. As long as an advisor has taken one of the approved ETF competency courses, they are licensed to sell ETFs. There are multiple ways for MFDA firms to access ETFs. Some firms are working with a third-party software company to manage the trades. Other firms have back-office software that allows MFDA firms to partner directly with an IIROC firm to place the trades. Either way, lack of access is no longer an excuse to not use ETFs.
Advisors have a lack of knowledge and training
We have tried to offer information and education on ETFs, as have our members, for the last five years. But it is clear that we still have a long way to go. There are numerous ETF events planned for Canada in 2020. There are magazines, newspapers, websites and webinars, all offered at no cost to advisors. So there is information available for advisors who are interested in learning about ETFs. CETFA has also offered to provide any training or material the advisor community needs because we know that advisors must feel comfortable with their knowledge of a product before offering it to their clients. CIFPs has taken us up on the offer and we are working with them on a quarterly magazine, webinars and conferences. We hope other organizations and firms take us up on the offer as well.
ETFs are too passive
We are not opposed to active funds. In fact, almost 50% of the ETFs launched over the past few years have been active – amounting to approximately 20% of ETF assets under management. However, we believe that ETFs are more efficient and transparent products than mutual funds. The discussion should no longer be about active vs passive, but about what is the best for a client – and what is the most efficient and cost-effective investment fund for a client.
Clients are not interested in ETFs
We challenge this statement because the CREDO research shows that the main reason investors are not using ETFs is because they do not know anything about them and their advisors have never raised the topic with them. According to CREDO, 46% of investors said they did not know what an ETF was and 13% of investors didn’t understand ETFs well enough to invest in them. We believe that ETFs should be part of every advisor’s shelf. ETFs have several advantageous features when compared to mutual funds, such as relatively low fees and portfolio diversification opportunities.
There’s not enough data on ETFs through volatile markets — they have not been tested
Really? The ETF was created in Canada and launched on the TSX 30 years ago, and ETFs fared well during the recent market downturn. ETFs have seen several down markets and ETFs, like stocks, are market dependent. ETFs move with the market. When market volatility increases, ETF trading tends to increase as well. Simply put, when ETF prices fluctuate, that should be considered a symptom of market volatility, not a cause of volatility.
CETFA and the entire ETF industry will continue to promote the benefits of ETFs and we hope that advisors take a closer look at what could be a valuable component to a client’s portfolio.