'Democratization of alternatives needs proficiency requirements'

AIMA Canada proposes new standard to allow MFDA members to distribute 'liquid alts'

'Democratization of alternatives needs proficiency requirements'

The Alternative Investment Management Association (AIMA) has proposed a new proficiency standard that would allow MFDA member firms to distribute alternative mutual funds in Canada.

AIMA Canada said it has long advocated for liquid alternatives to become broadly available in the country. In 2019, the Canadian Securities Administrators (CSA) adopted significant amendments to NI 81-102 that introduced alternative mutual funds to the Canadian retail market. However, they are currently available only through IIROC advisors as a result of existing proficiency standards for dealers.

The Association believes alternative mutual funds should be accessible by MFDA advisors, and to ensure adequate proficiency is recommending that a phased development of proficiency standards be considered by Canadian securities regulators.

AIMA Canada stated: “If adopted, MFDA member firms would have the option to choose from either acceptable independent course material that is already available in the marketplace - notably, the CAIA designation, CAIA Fundamentals certificate course and CSI Alternative Strategies: Hedge Funds and Liquid Alternatives course.

“Over time, MFDA members would also have the flexibility to produce a customized “in-house” course of specific topics that could also meet the proficiency standard.”

Claire Van Wyk-Allan, director, head of Canada, AIMA, said: “Given the diversification, risk reduction and non-correlated return benefits that alternative mutual funds offer to investor portfolios, it is imperative that fair access to these products is available to MFDA advisors across Canada.

“There are a number of existing courses that would meet our proficiency recommendations today and we also encourage the development of a customized solution if preferred by the dealer.”

Belle Kaura, VP Legal & CCO, Third Eye Capital and chair of AIMA Canada added that as we near the end of a decade-long bull market, investors need to prepare for volatility of equity markets and declining fixed income returns by turning to investment strategies that are uncorrelated to traditional markets and provide risk-adjusted returns.

“Investors can no longer rely on the 60/40 model,” she said. “With over 80,000 mutual fund dealers unable to sell alternatives, the democratization of alternatives will only be fully achieved with adoption of appropriate proficiency requirements.

“We are recommending a phased solution designed for ease of implementation which will provide all Canadians access to the benefits of alternatives while ensuring dealers meet high standards of proficiency. Bridging courses will serve to meet proficiency until the MFDA adopts standards proposed by AIMA for training.”

Rob Lemon, Executive Director, CIBC Capital Markets and Member, AIMA Canada Executive Committee, viewed the MFDA advisor channel as critical to the success of growing their liquid alternatives business.

“After consulting with our clients, we collaborated with industry associations to determine the optimal distribution of alternative mutual funds. We view the proposed proficiency standard as the way forward in accessing this $580+ billion market. It’s an exciting opportunity that will help more of our clients realize their ambitions.”