Dear Advisors,

Unless you’ve been stranded on a desert island for 5 years, you’re probably pretty aware of the emergence of ETF’s as the managed money solution of choice for investors around the world…and just starting here in Canada. ETF’s have essentially commoditized access to countries, regions, sectors and currencies for a fraction of the cost of an actively managed mutual fund. This commoditization essentially makes ETF’s a “Trading Widget.” So why all the excitement over a Widget?

Much has been made of the lower MER’s of ETF’s compared to actively managed mutual funds that pay trailer fees, and with good reason. When all other variables are equal, the price of investment management DOES matter…lower fees result in better returns for clients, and better Client results should be the first priority for excellent, client centered advisors. Experienced advisors realize that when it comes to comparing investment managers, things are definitley NOT equal. A lower MER on an ETF compared to a mutual fund is great…but ongoing management is still much more important than anything else! The intra-day liquidity of ETF’s is what really makes them an ideal “Trading Widget.”

As Financial Advisors, we’ve been conditioned for years by the Investment Industry Establishment (most mutual fund companies) to believe in things like Modern Portfolio Theory, the Efficient Market Hypothesis, etc. This belief in the “buy, hold and prosper” approach was used to persuade Advisors to keep their Clients fully invested through all market conditions. As an Advisor of 15 years, I bought into this philosophy for many years and became skilled at keeping Clients in during bad markets. Looking back on the last decade of investment results, my clients would have been better served by active portfolio management that focused on avoiding falling market segments-after all, moving to cash to avoid a 25 to 40% drop like we started to experience in September 2008 would have addded tremendous value to Clients. We didn’t have viable Trading Widgets available to make that happen because we were MFDA licensed…besides the fact that we wouldn’t have known where to go or when to get back in. Things are different now.

Now that ETF’s are finally gathering traction and momentum in Canada, dedicated active portfolio managers now have the “Trading Widget” they need to navigate markets cost-effectively. Now that’s something to get excited about!

Click here for Canada’s first (and currently only) actively managed ETF-based solution.

Cheers,

Andrew Ruhland, CFP, CSA

Client Centered Advisors