Pat Dunwoody, Executive Director, CETFA (Canadian ETF Association) who has the collective view of the Canadian ETF Industry from 30,000 feet, talks about how CETFA was established by Canada's largest ETF issuers to act as a common and impartial voice on policy, and most importantly, to be an objective source of education on ETFs, to both the public and within the industry. The ETFs business has experienced rapid growth in adoption, as well as proliferation, as seen by the number of ETFs available in the Canadian markets, and assets invested.
We spoke to Pat at the inaugural Inside ETFs Canada conference in Montreal.
"In the early days, the majority of ETFs were bought by institutional investors, and a lot of it was the do-it-yourselfers, right, the self-directed organizations" says Dunwoody. "To try to get into the brokerage firms was difficult [in the beginning], because not only did you have to sell the [industry] on the product, advisors had to also shift their clients into fee-based accounts."
"We had to take a step back about a year and a half ago, and take stock of that, and realize that as much as we wanted to talk product, and how valuable the product would be for a lot of clients, we had to figure out how to get advisors to understand that some, not all, clients, which clients should be moved into a fee-based account, without even talking product." Dunwoody said, "There's a long runway of considerations that the advisor has to [put in place] long before they look at ETFs [i.e. if they haven't transitioned to a fee-based platform already].
"There are so many add-on reasons for [advisors and] clients to flip to a fee-based accounts; not only does the structure differ, the payment of fees differs [beneficially], and, today, they have 700+ more products, ETFs, that they can look at."
"The question then became, for a lot of adivsors, "What clients do I move to fee-based?", says Dunwoody. "So then the discussion got into the question, competitively, of which clients are at risk of leaving an advisor's practice, [to go to incumbent fee-based advisors] so they can benefit from the combination of fee-based / low-cost ETF / F-class platforms?"
We then talked about the proliferation of Active ETFs this past year, which is where a substantial share of growth has been coming from, as some of the large mutual fund companies entered the fray with actively managed exchange traded funds. Canada is a unique market, one of the largest and fastest growing marketplaces for ETFs. Canada is leading the charge, accounting for nearly 30% of all actively managed ETFs launched globally.
"They [active fund managers] have always preached active management, so it wouldn't make sense for them to flip to indexing, it wouldn't be appropriate," said Dunwoody. "That may help the active side, because advisors understand active mutual funds, therefore, it's just a different wrapper, so they're the same product in essence, available as ETFs."
The [ETF industry around the] world is watching Canada to see how the innovation of truly active ETFs will be made use of by both advisors and investors, particularly because in the past in markets such as the U.S., UK and Australia, the business has been dominated by passively structured indexed product.
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