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Mutual fund advisers looking to sell exchange-traded funds may need to expand their product knowledge before being able to broaden their investment offering to clients to include ETFs.

The Mutual Funds Dealers Association of Canada (MFDA) is proposing proficiency standards that will see mutual fund licensed advisers wanting to sell exchange-traded funds receive additional training specific to ETF products.

Currently, mutual fund licensed representatives can trade in exchange-traded funds that meet the definition of a mutual fund under securities legislation. The problem that has plagued the ETF industry is that despite being licensed to sell ETFs, the majority of mutual fund advisers in Canada do not have access to an exchange in order to trade ETFs.

Last April, an industry working group – which included the Canadian ETF Association – provided an industry solution that could open the door for more widespread access to ETFs. (At the moment, investors can only access ETFs though online do-it-yourself platforms, or financial advisers who hold a securities licence.)

But accessing an exchange is not the only hurdle for advisers. In addition, the material that is reviewed for the mutual fund license currently does not adequately address the sale of ETFs – including the major differences in how ETFs and mutual funds are transacted.

In a recent bulletin, the MFDA proposed that, in order to satisfy regulatory standards, mutual fund advisers would "need to receive training on information about characteristics and features of ETFs, as well as, training on how ETFs will be offered through the [investment firm]."

If approved, investment firms would need to develop policies and procedures for transacting in ETFs, which could include: how trade orders will be processed, detailed product information, how market quotas will be obtained and the disclosure information required for each transaction. ETF training should also highlight the key differences between ETFs and conventional mutual funds.

"We already see proficiency standards in place for products that include things like options or hedge funds," says Som Seif, president of Purpose Investments Inc. "A lot of advisers have to complete these standards when you get into certain areas and I think it is important to make sure they have the required education prior to using a product."

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