Sterling Mutuals adds ETFs to product shelf

“I think [this] helps to put the advisors on more even footing with IIROC guys,” said Nelson Cheng, CEO of Sterling Mutuals, during an interview with Investment Executive. The firm got final approval for its ETF module from the MFDA in mid-April, followed by a limited pilot phase.

That module, developed in partnership with OneBoss, connects directly to the firm’s back-office system, and trades are then routed through Toronto-based CI Investment Services Inc. (formerly BBS Securities Inc.). The setup was thoroughly tested, Cheng said, and is straightforward for the advisor and cost-effective for the dealer.

“I don’t know for sure how much volume of business is going to be done, but it’s one of those things — you still want to make sure that it’s available,” he said.

One reason it took a while for Sterling to join the small group of MFDA dealers who now offer ETFs was the impact of the pandemic on both the firm’s operations and the industry. “It kind of threw a wrench into things last year,” Cheng said, affecting how quickly the firm could create and test their system. (The latter is continuing as it rolls out.)

Sterling advisors who want to sell ETFs are getting trained, a step that’s especially important as the Canadian Securities Administrators’ client-focused reforms come into play. All MFDA-licensed advisors who want to sell ETFs must take a proficiency course.

“We’re making it mandatory that [advisors] get training on how to use the system before we let them do any trading,” Cheng said. That includes both external (e.g., Toronto-based Learnedly’s proficiency course or the offering from the Canadian Securities Institute) and internal courses.

Cheng said the system that Sterling helped build is scalable and configurable (e.g. trades could be routed through a different IIROC dealer), will accommodate advisors as more clients demand ETFs, and will be available to other firms.

Another MFDA firm that recently added ETFs was Investia Financial Services Inc., subsidiary of Industrial Alliance Insurance and Financial Services Inc. (iA Financial Group). It also made the leap to give advisors better market access.

“It’s a wide-open shelf and we think that that is truly the best value-add,” said David Chapman, president of iA Financial Group subsidiary FundEX Investments Inc. (based in Vaughan, Ont.). 

The firm made ETF access possible as of March 1 by working with platform provider Univeris. The firm had an advisor test pilot group at the end of last year, Chapman said, and  Investia now has about 90 ETFs on its shelf.

Similar to Sterling, Investia requires its advisors to gain ETF proficiency.

Firms’ efforts to enhance advisors’ product shelves are welcomed by industry organizations.

Pat Dunwoody, executive director of the Canadian ETF Association (CETFA) said in an emailed statement that the cost and transparency of ETFs make them a solid addition.

“Initially, they were great broad-based investment products, but now there are so many that capture niche areas that could be small parts of an investor’s portfolio,” allowing advisors to cater more precisely to people’s interests, she said.

CETFA has worked one-on-one with dealers to help them gain ETF access, and offered webinars and other information.

The Federation of Mutual Fund Dealers is also helping firms by offering guidance documents and discussing best practices with firms.

Executive director Matthew Latimer noted that the number of firms considering ETFs is increasing, as is the number of advisors taking industry courses. “Clients continue to ask for ETFs and advisors are seeking to respond by including them in some portfolios,” he wrote in an email.

The MFDA said in an emailed statement that updated guidance will come “shortly,” given ETF assets under administration (AUA) in the channel have grown nine-fold in the last two years.

Still, ETF AUA “is not a material portion” of MFDA firms’ total assets, the MFDA said.