Branch-based bank financial advisors and planners deeply value their ability to offer clients a wide range of products. The Report Card on Banks’ “freedom to make objective product choices for clients” category has remained among the top 10 most important to respondents for more than a decade, and this is one reason why banks need to continually update their product suites across all business lines.
One product type that advisors are not asked about in the Report Card on Banks is ETFs — because most branch-based advisors are not allowed to sell them. Yet, advisors at multiple banks were vocal about the value that these products can have for their clients. Several advisors even connected their potential access to such funds with feeling restricted in what they can sell, and being heard by executives.
One advisor in Ontario from Toronto-Dominion Bank (TD) says, “We’re restricted to our mutual fund space. Not allowed to [sell] stocks [and] limited with ETFs,” while an advisor in Ontario from Canadian Imperial Bank of Commerce (CIBC) says, “We were looking to work with ETFs and, as of January, [they’ve] been launched. [This] made us feel heard but I would like to see it happen faster.” (Both banks are based in Toronto.)
TD was the lowest-rated bank in the product freedom category, at 8.0, although its rating did improve by 0.5 vs 2018. CIBC was rated highest among the banks in the product freedom category, at 9.6, as well as in “firm’s receptiveness to advisor feedback,” at 9.0. (See Assessing banks’ product shelves)
Conversely, an advisor in Ontario from Toronto-based Bank of Montreal (BMO) says, “We have a really great variety of products that match a lot of my clients’ needs. We were the first to bring ETFs.” The institution was rated fairly consistently year-over-year in the Report Card’s four product-focused categories, and placed in the middle among its peers. (TD launched ETFs in 2001 and closed them in 2006, but then relaunched funds in 2016. BMO first launched ETFs in 2009.)
Leading into 2019, all of the Big Six were active in the ETF space. Even so, bank executives from all of the institutions told Investment Executive that they don’t allow their branch-based advisors to sell ETFs directly.
For example, Toronto-based Bank of Nova Scotia’s vice president of advice and service effectiveness, Jamie Auerbach, says, “Our [branch-level] advisors do not sell ETFs […] There [are] some channels throughout the organization that do.” Advisors at the branch level must refer clients if there’s interest in the products.
One likely reason is, as the Report Card on Banks shows, most of those advisors tend to be licensed by the Mutual Fund Dealers Association of Canada (MFDA). In the 2019 Report Card, 97.6% of respondents, on average, were with the MFDA while only 27.5% were either solely or also with the Investment Industry Regulatory Organization of Canada. Those working at TD and CIBC were an exception; the vast majority said they have both licenses.
The MFDA did introduce a policy that set out proficiency requirements for firms and approved persons wanting to sell ETFs in 2017, but that policy requires that member firms offer internal educational resources and track advisors’ training if they’re offering the funds.
In spite of their limitations, several advisors at different banks mentioned ETFs.
A BMO advisor in Ontario says the bank is a “leader in the ETF market and should get credit for that,” while another in Ontario echoes the same sentiment and calls BMO’s suite “dynamic” and “unique.”
Regarding Toronto-based Royal Bank of Canada, an advisor in Atlantic Canada says, “There’s nothing that we can’t offer: stocks, ETFs, third-party funds. We’re always ahead of the 8-ball when it comes to investment.” Even so, one of that bank’s advisors in B.C. notes they’re still learning about ETFs, suggesting some room for growth and training.
TD advisors seemed less satisfied. One in Ontario says, “Our product lineup isn’t where it needs to be [regarding] product diversification, ETFs and private pools,” all of which are “lacking.” An advisor in B.C. from the same bank says, “There are no ETFs. They’re not bringing any new solutions to the market.”
Each year, Report Card on Banks respondents are asked which types of products their assets under management are invested in. While the breakdown provided doesn’t include ETFs, both proprietary and third-party managed products (e.g. in-house and external wraps or accounts) are on the list, which 37.2% and 5.6%, respectively, said they sell to clients. (See Growing divide)
For branch-based advisors at some institutions, managed products are one way to access ETFs.
BMO advisors have to purchase individual ETFs through the bank’s InvestorLine offering, but a BMO representative said in an emailed response that “ETFs are incorporated into many BMO mutual funds” to help diversify portfolios, among other benefits.
Michael Walker, vice president and head of mutual funds distribution and RBC Financial Planning at RBC, says his bank has built ETFs into their index products: “These index funds […] directly invest in the RBC iShares ETFs, giv[ing] our advisors and clients direct access to the […] alliance between RBC and BlackRock [Inc.].”
CIBC takes a similar approach, says Kathleen Woodard, senior vice president of delivery and operational effectiveness, personal and small business banking. Advisors and their clients can get access via use of Investor’s Edge or through the bank’s portfolio products.
Other banks are open to change.
David Terry, vice president and head of TD Wealth Financial Planning, says, “We’re watching [the ETF] space very closely. It’s of tremendous interest to us, […] but at this stage, we’ve not yet looked at putting ETFs on the [branches’] financial planning shelf.”
Nancy Paquet, senior vice president of strategy, investments and savings, and retail banking at National Bank, says that the bank is working on a “new platform” that will initially launch in fall 2019 but be deployed in phases over the following 10 to 12 months. While there are “no changes yet” to the products available to branch-based advisors—they tend to sell GICs and mutual funds—the platform will allow, in the future, easier access to ETFs that meet 81-102 requirements. For the branch network currently, the funds are embedded in some managed products.