IIROC brokers won't pull back on ETF use, CETFA says

Poll reveals plans to increase utilization, investment areas for ETF use, and considerations in using ETFs

IIROC brokers won't pull back on ETF use, CETFA says

ETFs have become an integral part of brokers’ toolkit as they fulfill a wide variety of needs and applications, according to a new report from the Canadian ETF Association (CETFA).

The newly released report draws from a survey conducted in partnership with Environics, which polled over 300 leading brokers registered with the Investment Industry Regulatory Organization of Canada (IIROC), with participants representing both banks and independents.

More than three quarters of the respondents had AUM above $50 million – including 49% with assets above $100 million. Over half charge fees based on assets, 28% get compensated from trailing commissions, and 11% from trading commissions.

“The survey responses provided an interesting and insightful view into how brokers are working with ETFs and what the future of ETFs in Canada might look like,” the report said.

Over the past 12 months, 85% of brokers sold ETFs to some degree, with ETFs making up 14% of their sales on average. That’s behind mutual funds, which were used by 97% and made up 43% of sales on average, and stocks and bonds used by 92% and representing 30% of sales.

In the past year, 56% said they increased their ETF usage, and even more (62%) said they intend to ramp up their usage over the next year. The number increases to 76% when looking out over the next five years, with 24% saying they expect a “substantial” increase in use.

Among brokers increasing their dependence, 53% expect to use ETFs more for international equities, 44% for fixed income, and 42% for U.S. equities. Other categories cited were ESG (41%), alternative investments (37%), and cryptocurrencies (35%).

The survey also uncovered considerable variation in ETF usage. Some respondents said they use ETFs intensively for specific clients, asset classes, and mandates, others use ETFs more broadly, including them in portfolio cores or across a wider range of clients.

Practice concerns such as the use of fee-based offerings were frequently cited to explain different ETF usage patterns. In many cases, they’re also influenced by brokers’ determinations of which clients they’re suitable for, as well as where they can best be used to achieve practice efficiencies, enhance diversification, and contain costs.

Around two thirds of brokers surveyed (67%) expressed a desire for more sophisticated materials on how to incorporate ETFs with other products in portfolio construction. Nearly the same number of respondents (65%) said they would like access to better educational materials to help clients understand the benefits of ETFs.

“These results suggest that despite considerable variation in how and where brokers are using ETFs in their practices, they are open to re-examining strategies and approaches,” the report said. “This is particularly likely to be true if new approaches can save cost, improve practice efficiency, support practice goals or enhance diversification.”