More advisors likely to embrace ETFs as their popularity grows

But the panelists said that mutual funds would also continue to play a significant role in the industry. They said mutual funds and ETFs can be used together in client portfolios.

“Smart investors have both,” said Pelant. “If you get that blend right, which is what the biggest institutions in the world do, I think you’ve got a really nice ability to help clients navigate rough waters, and still get that little bit of outperformance.”

Som Seif, CEO of director of Claymore Investments, Inc., said the industry is moving towards this combination of active and passive investing strategies. “I think that’s the future of the industry,” he said.

However, the panelists noted that few financial advisors in Canada have embraced ETFs, partly because many advisors are only licensed by the Mutual Fund Dealers Association and therefore cannot distribute ETFs. But they expect this to change, with more advisors likely to embrace ETFs as their popularity grows. They noted that some firms are developing ETF products packaged as mutual funds in order to allow advisors to offer them.

One example is Invesco Trimark Ltd.’s PowerShares Funds. Peter Intraligi, president and COO at Invesco Trimark, noted that in the few months after the funds were launched to the advisor community at the beginning of the year, they raised $400 million.

“What you’re seeing is that advisors are embracing this, and it is going to be more of a standard offering at the retail level,” Intraligi said.

Ken McCord, president of AlphaPro Management Inc., said he expects ETFs to gain traction in the advisory distribution channel as more advisors move to fee-based practices. He noted that Australia and Britain have already taken steps towards the elimination of commission fees tied to products, and he expects the same reforms to eventually take place in North America.

“Eventually, advisors will have to separate the fee they charge for what they do versus the fee on the product itself,” McCord said. “That’s progress for a product like ours.”

Seif said advisors play a critical role when it comes to ETFs by helping clients choose the most appropriate funds for them. This is particularly important since new ETFs are emerging at such a rapid pace.

Tom Bradley, president and co-founder of Steadyhand Investment Funds, and a proponent of mutual funds, said the vast growth of ETFs would continue to result in slower growth of mutual fund assets in the decade ahead. But he pointed out that the emergence of ETFs has also been beneficial to the mutual fund industry, by giving investment managers added incentive to innovate and improve their performance.

“In one sense it’s going to hurt our market share and growth is going to be slower, but it’s going to force fund companies and fund managers to differentiate themselves,” Bradley said.