TD becomes latest bank to offer ETFs

The exchange-traded funds industry will see its third bank player emerge, as TD Asset Management is set to launch its own suite of ETFs in early 2016.

"In early part of next year, we'll be rolling out our proprietary suite of ETFs, both passive and active in nature," Leo Salom, executive vice-president of TD Wealth Management, said during the TD Retail Investor Day last month.

Details of the new ETF offering have not been released by TD, but Mr. Salom discussed the offering as part of TD Wealth Management's initiatives to launch a number of lower-cost alternatives to longer-term investors.

"[Clients] are looking for lower-cost solutions," Mr. Salom said. "They want to avoid paying full-service brokerage fees, but yet they're willing to pay for asset allocation and investment guidance."

The announcement came just prior to TD Asset Management adding 33 mutual funds to its D-series funds, which offer self-directed investors access to actively managed, lower-cost mutual funds. TD also has had success with its TD E-series funds, which compete with ETFs and are popular with index investors.

"We listened to our clients and their advisers, and are continually evolving our solutions to meet their needs," Tim Wiggan, chief executive officer of TD Asset Management Inc., said in a statement to The Globe and Mail about TD entering the ETF market. Details of the new ETFs will be announced before launch.

As of September, 2015, Canadian-listed ETF assets were $86.5-billion, according to National Bank Financial.

Both Bank of Montreal and Royal Bank of Canada are already operating in the ETF space, with BMO being the second-largest player in market share with $23.7-billion in ETF assets.

"There's been strong growth in the Canadian ETF space in recent years, so it's no surprise that we're seeing new providers emerge," says Kevin Gopaul, senior vice-president and chief investment officer at BMO Global Asset Management.

"Ultimately, [a new player] means more choice for investors and will encourage product innovation and stronger offerings."

This isn't the first time TD has entered the ETF marketplace. It first launched ETFs back in 2001 with four Canadian equity ETFs. But despite beating its competitors to market, the company exited the business in 2006 due to low trading volumes.

TD's re-entrance into the market has been widely anticipated within the industry.

"A potential new ETF player like TD Bank does not come as a surprise as we believe that most banks and mutual fund companies in Canada with distribution have some interest in ETFs, particularly the strategic beta and actively managed spaces," said Steve Hawkins, co-CEO of Horizons ETFs Management (Canada) Inc. "Becoming an ETF issuer will not be for everyone, but the ETF industry is rapidly maturing in Canada, so it cannot be ignored. As a result, we would expect to see new ETF entrants in Canada, especially those with strong distribution channels."

There are currently 12 ETF players in the Canadian market with Lysander Funds, a retail affiliate of Canso Investment Counsel, entering just last month. At the same time, industry giant CI Financial Corp. purchased ETF provider First Asset Capital Corp., adding 42 actively managed and factor-based ETFs to its platform.

"Distribution is to financial services what location is to real estate. And while ETFs are distributed in many of the same channels as mutual funds; an ETF product lineup will grab a slice of the investor pie that firms like CI and TD don't have today," said Dan Hallett, vice-president and principal with HighView Financial Group. "It makes sense for them to enter the ETF space from a business perspective since there is likely a good amount of growth ahead for ETFs, thanks in part to pending regulatory changes."