exchange-traded funds, woman with tablet

Mutual fund dealers planning to offer ETFs to their clients directly through their advisors will need to make several changes before starting the process, said Marc Guerin, director of member education at the Mutual Fund Dealers Association of Canada (MFDA).

Speaking at the seventh annual conference of the Federation of Mutual Fund Dealers in Toronto on Tuesday, Guerin emphasized that additional training by member firms — beyond the requirements of MFDA Policy No. 8, which pertains to the proficiency standard for selling ETFs — will be required, and that training should be specific to the products being offered.

For example, dealers can focus their training by determining how quotes are obtained, the type of trades that will be occurring, which accounts are offering ETFs and the compensation structure.

Additionally, members will need to consider due diligence for each new product, providing a due-diligence review similar to that of mutual funds.

“Specifically, if you’re doing a proposal,” Guerin said, “we ask to see a list of the [ETFs] you’re thinking of immediately launching and what the risk ratings are for those particular funds — just so we can go through it and see if there are any funds that don’t meet the definition of a mutual fund.”

The MFDA will also want to discuss trading instructions and pre-trade disclosures, such as how the funds are tied into the firm’s compensation structure and how the dealer is providing evidence of this. Other concerns include trade execution and time stamps for trade offers.

One topic that is garnering a lot of discussion with the MFDA is quotes, Guerin said. “Quoting services can be costly, so we need to know what the member needs for advisors providing quotes to clients, so they can accept the best possible trade instruction for that client,” he said.

Regarding client reporting, Guerin also wants dealers to ensure that CRM 2 reports include all ETF activity, such as fees.

Introducing any new product or technology, Guerin cautioned, will likely trigger a general update to a firm’s stated policies.

“This should be part of your launch proposal for ETFs,” he added. “Always remember that written policies and procedures have to be up to date for any changes of this nature.”