RBC lifts ban on sale of cash ETFs through its online trading platform

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Royal Bank of Canada RY-T, the country’s largest bank, is no longer blocking investors from buying high-interest cash funds from its discount trading platform.

In a recent memo, RBC Direct Investing Inc. notified do-it-yourself investors that they now have access to high-interest-savings-account exchange-traded funds, a group of third-party investment products it had previously banned for almost a decade.

High-interest-savings-account ETFs, also known as cash ETFs, or HISA ETFs, mainly invest in pools of banks’ high-interest savings accounts and deposits. They allow buyers to earn steady, low-risk interest without directly depositing their money at banks. For this reason, the funds are seen as competitors to banks’ own lucrative deposit accounts.

These funds surged in popularity among retail and institutional investors as interest rates began to increase in 2022. Today, Canadian HISA ETFs have almost $21-billion in assets, according to data from National Bank Financial.

Since the introduction of HISA ETFs in 2013, the discount brokerage arms at RBC, Bank of Montreal BMO-T and Toronto-Dominion Bank TD-T have mostly blocked do-it-yourself investors from buying the funds. This has prevented a large percentage of investors from adding the low-risk investments to their portfolios, and in some cases forced them to turn instead to high-interest bank deposit accounts. Those accounts had about $490-billion in assets as of March, 2023, according to research provided by Investor Economics, a unit of ISS Market Intelligence. The Big Six banks account for more than 74 per cent of that business.

But the product offerings at some of Canada’s biggest banks have been under review by several securities regulators over the past year. That review has included a broad compliance sweep to examine whether banks are restricting competitors’ products in order to boost their own.

RBC spokesperson Kathy Bevan said in an e-mail that RBC Direct Investing added third-party HISA ETFs as part of a regular internal review of the securities available on the platform. She said the bank makes updates “from time to time.”

Spokespeople for TD Bank and BMO told The Globe and Mail that those banks’ discount brokerages, TD Direct Investing and BMO InvestorLine, are continuing to review their product offerings, but currently do not provide access to HISA ETFs.

“We offer a wide selection of investment products including cash equivalents to meet the needs and financial objectives of our clients,” BMO spokesperson Jeff Roman said in an e-mail.

Bank of Nova Scotia BNS-T, Canadian Imperial Bank of Commerce CM-T and National Bank of Canada NA-T sell HISA ETFs through their discount brokerages.

The addition of third-party HISA ETFs at RBC Direct Investing does not include access for RBC financial advisers, who still can’t provide the funds to the bank’s wealth management clients. Financial advisers at the securities brokerages of TD, BMO, and Scotiabank also continue to be blocked from buying HISA ETFs for clients.

HISA ETFs currently pay after-fee interest of about 5.3 per cent. The funds also offer investors liquidity, whereas the equivalent products at banks – savings accounts and guaranteed investment certificates – may have locked-in investment horizons, and can be slow to react to rising interest rates.

The six HISA ETFs in Canada are the Horizons Cash Maximizer ETF HSAV-T, the Horizons High Interest Savings ETF CASH-T, the CI High Interest Savings ETF CSAV-T, the Purpose High Interest Savings ETF PSA-T, the Evolve High Interest Savings Account Fund HISA-NEO and the Ninepoint High Interest Savings Fund ETF Series NSAV-NE.

In addition, there are three U.S. dollar cash alternative HISA ETFs in Canada: Purpose US Cash ETF (PSU/U), Horizons USD Cash Maximizer ETF (HSUV/U) and Evolve US High Interest Savings Account Fund (HISU/U).

Earlier this year, the sudden boom in cash ETFs sparked a review by the Office of the Superintendent of Financial Institutions, which regulates banks. The study is looking at any liquidity risks these ETFs might pose if investors were to quickly cash out of the funds. The outcome of that review is set to be announced in October.

Despite the review, investors continue to pour money into the funds. HISA ETFs now account for about 18.8 per cent of the nearly $111.1-billion invested in fixed-income funds as of Aug. 30, according to data provided by National Bank Financial.

Purpose Investments was the first ETF provider to introduce HISA ETFs in Canada. It currently manages about $6.5-billion in its two funds.

“We’ve worked for the last 10 years to show the value of this product, so we are extremely supportive of RBC making this more widely available for their clients,” Purpose Investments chief executive Som Seif said in an interview. “This is a great outcome and I hope that other platforms ultimately make the same decision so every Canadian investor at any bank can get the same access.”

Evolve ETFs chief executive Raj Lala – who oversees about $5.5-billion in HISA ETFs – agreed that financial institutions should not be blocking investors from accessing cash-like investment products.

“HISA ETFs have been an important innovation in the fund industry, as they provide investors with one of the best yield-versus-liquidity options in the market today,” he said.

“The products should be available to all investors, regardless of what platform they trade on, or whether they use a financial adviser.”

Horizons ETFs Management (Canada) Inc. has about $6-billion in assets in three HISA ETFs. Horizon’s chief executive, Rohit Mehta, said he is “encouraged” by RBC’s decision as it “supports accessibility and investment choice for Canadian investors.”