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The Mutual Fund Dealers Association (MFDA) is looking to develop proficiency standards for trading in exchange-traded funds, a move that could make ETFs accessible to more investors.

Currently, mutual fund licensed representatives can trade in exchange-traded funds that meet the definition of a mutual fund under securities legislation. This includes the majority of ETFs in the marketplace.

The challenge lies in that the mutual fund dealer does not have access to an exchange in order to settle the trade.

Many investors access ETF products through online do-it-yourself platforms, but there is a segment of Canadian investors who rely on financial advisers to access financial products for their portfolios. By expanding access to mutual fund advisers, investors would be given the opportunity to access lower-cost products while maintaining a relationship with their current financial adviser. They would not have to be referred to a securities licensed representative.

The Canadian ETF Association (CETFA) has been working on an industry solution for the last two years that would provide mutual fund advisers to be able to sell the majority of ETFs directly to clients. It is expected to be finalized this year.

Mutual fund representatives at Mandeville Wealth Services Inc., a mutual fund dealer run by Jamaican billionaire entrepreneur Micheal Lee-Chin, was the first mutual fund dealer to provide access to selling ETFs last May.

The firm was able to develop a solution to provide access through its own back office provider. Unfortunately, the solution was proprietary and did not solve the industry-wide problem. As well, the firm only provided access to those mutual fund advisers who have completed the Canadian Securities Course (CSC). (The CSC course is generally completed by those advisers who work in the brokerage industry and sell securities)

As the industry continues to work out the wrinkles, the MFDA has established an ETF working group and the results will be used in future policy initiatives, according to a recent MFDA bulletin. The MFDA stated that approved persons who want to trade in ETFs may require additional proficiency.

"There is already a [MFDA] member offering ETFs. Regardless of whether other firms may also want to trade in ETF's, we felt it was prudent to address a potential proficiency gap," the MFDA stated in an email response. There are about 81,000 registered representatives as part of the MFDA.

Overall, the announcement is good news for the industry, says Sandra Kegie, executive director of the Federation of Mutual Fund Dealers in Toronto who partnered with CETFA in spearheading the working group. "Both the regulators and the industry are taking additional proficiencies into consideration because we understand that there are regulatory requirements when it comes to product suitability for investors."

One of the major concerns brought up by the CETFA working group is that currently the existing mutual fund course does not include ETF products. Mutual fund dealers would need to take this into consideration prior to providing access to its advisers, says Kegie.

Right now there is nothing specific in regulation that requires an adviser to add to his existing education to sell ETFs, says Ms. Kegie. "However, advisers who are selling a product, and a dealer who approves a product for sale, needs to make sure they understand the product that they are selling or approving."

According to Investor Economics, Canadian-listed ETF assets were $76.7-billion (Canadian), as of Dec. 2014. Of that total, nearly $45-billion were held by retail investors, primarily with an Investment Industry Regulatory Organization of Canada-based advisor or through the online/discount brokerage platform.

In addition to this, Canadian retail investors also owned $17-billion (U.S.) in U.S.-listed ETFs.

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