Mutual fund-registered firms and advisors have been slow to move into the ETF space, but the new self-regulatory organization (SRO) may encourage uptake. More than five years after regulators approved the Mutual Fund Dealers’ Association of Canada’s (MFDA) proficiency standard for selling ETFs, fewer than 10 MFDA firms are active in the space, said Pat Dunwoody, executive director of the Canadian ETF Association.
Some dealers are hoping that will change when the new SRO — merging the MFDA and the Investment Industry Regulatory Organization of Canada (IIROC) — forms in December.
For now, there are still operational hurdles that carry upfront costs, Dunwoody said. Firms must update their trading policies and advisor training, and invest in back offices to support ETFs. But the shift to fee-based accounts and client demand for flexible, low-cost options should support ETF adoption, she said.
The end of deferred sales charge (DSC) funds in June is also driving MFDA advisor interest in ETFs, said Robert Frances, president and CEO of dual-registered Peak Financial Group, which has offered ETFs since 2016.
Richard Rizi, vice-president, investment services with Worldsource Financial Management Inc., said he hopes the new self-regulatory organization will lead more MFDA firms to adopt ETFs. Many dealers are “waiting for that [new] regime to come into place before making any changes,” Rizi said.
Dual-registered Worldsource has offered ETFs for MFDA advisors since 2019 and now has $100 million in ETF assets on that side of its business. The MFDA said ETFs make up “a small percentage” of firms’ assets, although the figure is growing.
IIROC said rule revisions under the new SRO will allow dual-registered firms to operate under a single legal entity, making it easier to connect staff and back offices from both sides of the business.
Frances, who’s on the board of the new SRO, said a more integrated back office will allow firms to reduce client paperwork and simplify communications for both advisors and clients.
As for ETF proficiency requirements under the new SRO, IIROC said advisors not currently registered to sell ETFs will have to take one of three existing courses (all of which are currently accepted by the MFDA). The course options will be the same for all advisors and firms.