Mandeville’s MFDA reps now sell ETFs

“Of course, it would have been nice to be the first one out of the gate,” says Pat Dunwoody, the CETFA’s executive director. “But everyone on the CETFA board sees this as great news because it proves our point. It shows what we have been trying to accomplish over the past year is now possible.”

Frank Laferriere, senior vice president and chief operating officer at Mandeville, says the firm spent about three months developing its system: “Our [reps] are already proficient in mutual funds, and we don’t believe it is that much of a stretch to be able to give them this extra tool to service their clients. Intrinsically, ETFs are mutual funds, so why shouldn’t a mutual fund advisor be able to offer these products?”

The lack of access to ETFs for mutual fund advisors is not primarily the result of legal or registration issues, but because of technological limitations and lack of creativity, says Laferriere. Currently, advisors licensed by the Mutual Fund Dealers Association of Canada (MFDA) are registered to sell ETFs but do not have access to a securities exchange to purchase the ETFs.

“Making ETFs available to mutual fund dealers is really an industry interface challenge akin to the round hole/square peg cliché,” says Scott Mackenzie, senior vice president, business development, with Toronto-based Fidelity Clearing Canada ULC (FCC). “The traditional MFDA platforms don’t have the ability to connect with or understand the securities market infrastructure, such as the exchanges and clearing houses, so they are not able to access or easily support ETFs.”

Mandeville was able to set up its ETF offering quickly by utilizing its existing back-office relationships with Toronto-based Broadridge Financial Solutions Inc. and FCC. Mandeville mutual fund reps place ETF trade orders directly on Broadridge’s Dataphile platform. Those trades then are executed through Mandeville’s relationship with its carrying broker, FCC, which executes and settles the trades and provides custody services for the ETFs on behalf of Mandeville via Dataphile.

The overall process involved discussions with Mandeville’s back-office partners but also with internal compliance people and industry regulators.

“It was simply about putting the pieces together,” says Laferriere, “understanding the obstacles and then coming up with a solution.”

Broadridge was able to configure a system on the MFDA platform that would only allow approved Mandeville advisors to order trades with specific ETFs.

“We had to make sure the system was configured so that only specific [Mandeville]-authorized ETFs were allowed to be processed,” says Paul Strijckers, Broadridge’s vice president of business solutions, “as well as ensure [the system] satisfied [Mandeville]’s defined regulatory requirements.”

There are more than 300 ETFs available in Canada, but Mandeville mutual fund reps will have access to a pre-approved list of approximately 60.

“We went through a filtering approach,” says Laferriere, “to identify those ETFs that were largely mutual fund-based, as opposed to a commodity pool.”

A major obstacle for dealers to consider is that although MFDA advisors are licenced to sell ETFs, current MFDA courses do not contain any information on ETFs.

The Ontario Securities Commission (OSC) says that mutual fund dealers will need to address this proficiency gap before trading ETFs. An email from the OSC confirms that the regulator has not met directly with Mandeville.

Laferriere agrees that advisor education is key to investor protection. Thus, Mandeville will be assessing the proficiencies of its MFDA advisors before they are approved to sell ETFs. For now, only those MFDA advisors who have completed the Canadian securities course (CSC) are permitted to handle ETF orders. But Laferriere is quick to say he is in discussions with several service providers to provide ETF-specific training.

The CETFA also has advisor education at the top of its list and its working group, which includes TMX Group Ltd. and Clearing and Depository Services Inc., will continue to develop a set of best practices that would be based on proficiency requirements already in place for selling mutual funds. The group is continuing with its plans to launch a pilot project in Ontario by the end of 2014.

The group’s plan proposes using a member of a securities exchange to conduct the trade of an ETF on behalf of MFDA-licensed advisors. Windsor, Ont.-based Sterling Mutuals Inc. and Vaughn, Ont.-based FundEx Investments Inc. also will participate in the pilot project.

“Hats off to Mandeville for finding a solution that will provide its advisors with access to the ETF market,” says Nelson Cheng, CEO of Sterling Mutuals. “However, the [CETFA] working group is developing a solution that will work with all dealers and their various back-office systems, including proficiency requirements for advisors and registration requirements for dealers.”

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