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Justwealth, Vexo Technology knock down ETF barriers for mutual-fund dealers

Currently, mutual-fund representatives are licensed to trade in exchange-traded funds that meet the definition of a mutual fund under securities legislation.

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Mutual-fund advisers can now more easily gain access to exchange-traded funds through a recent partnership announced by robo-adviser Justwealth Financial Inc. and Vexo Technology Solutions Corp.

Currently, mutual-fund representatives are licensed to trade in exchange-traded funds that meet the definition of a mutual fund under securities legislation. In theory, this includes the majority of ETFs in the marketplace, but most of Canada's mutual-fund dealers do not actually have direct access to a securities exchange to settle an ETF trade.

Now mutual-fund dealers can provide their advisers access to Justwealth's managed ETF portfolios by using Vexo's ETFbahn, a trading platform specifically designed to allow mutual-fund advisers to gain widespread access to ETFs. This means that, unlike some referral arrangements currently on the market, the Vexo platform allows advisers to continue to manage their clients' accounts in-house, rather than having to transfer the client relationship to another platform or provider.

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"Up until this point, mutual fund advisers have only had the option of recommending mutual funds to their clients and now this partnership will arm them with something that they have not had the opportunity to offer," said Andrew Kirkland, president of Justwealth.

With approximately 83,000 mutual-fund advisers in Canada, the opportunity for ETF growth in the channel is staggering, yet getting them access to a securities exchange has been a slow-moving project for the ETF industry.

The Canadian ETF Association, along with other industry groups, provided a back-office solution in 2015 in which dealers could gain access to an exchange through a partnership with custody and trade-execution provider National Bank Correspondent Network.

Several mutual-fund dealers, who also have security-licensed platforms, were able to build in-house solutions, but those models were not scalable for the industry as a whole to adopt, Vexo president Fotios Saratsiotis said.

"With the exponential growth of ETFs over the last few years, we are on a mission to help democratize the investment-management industry by developing solutions that level the playing field and allow its participants and their clients to access cost-effective investment products," Mr. Saratsiotis said. "We are pleased to be able to offer a solution that works for every dealer in the industry. Leveraging our platform and our partnership with Justwealth, we are creating the industry's first true hybrid model: an adviser-powered, robo-solution for mutual-fund dealers."

Several other robo-advisers in Canada have set up access for mutual-fund advisers to use. Vexo's offering differs because it also allows advisers the option to purchase individual ETFs sold in the Canadian marketplace (in addition to the Justwealth portfolios).

Currently, there are more than 600 ETFs in Canada (not all have been approved to be sold by mutual-fund licensed representatives). Using the Vexo platform, mutual-fund firms will be able to set parameters around the type and number of ETFs their mutual-fund advisers are able to sell to clients. For instance, firms will be able to eliminate products with higher risk levels, such as inverse or leveraged ETFs.

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About the Author
Globe Investor Reporter

Clare O’Hara is a reporter at The Globe and Mail. Prior to that, Clare spent eight years as a staff writer at Investment Executive, a national newspaper for financial service industry professionals. More

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