Helping clients learn the ABCs of ETFs

first_imgFiona Collie 10 ETFs for the core of your portfolio Strategies for using ETFs in portfolio construction Share this article and your comments with peers on social media ETFs: Removing a roadblock For more than 10 years, clients have come to Reg Jackson, a portfolio manager with London, Ont.-based JMRD Wealth Management Team, National Bank Financial Ltd., with questions regarding exchange-traded funds (ETFs) — and their interest doesn’t seem to be flagging. For financial advisors, the key to satisfying clients, Jackson says, is being prepared to provide them with information on a range of ETFS, from plain vanilla products to the more complex versions. Facebook LinkedIn Twitter Tax efficiency for bond-fund investors ETF Guide for Financial Advisors magazine Related news Initial conversations with clients should be pretty broad in nature in order to ease them into products and strategies that can quickly become complex and detailed, suggests Tom Hamza, president, Investor Education Fund (IEF), in Toronto. One objective is not to get bogged down in details. “You could bore somebody to tears,” he says. “I think the point is to talk about [ETFs] at a high level and have them understand that this product exists, and from that, talk about [how it] could fit into the portfolio.” For clients seeking detailed information, start with an explanation of the product’s fundamentals. For example, as most ETFs follow indices, Hamza says it’s important to make sure that a client understands what an index is. From there, look at why he or she might want to buy an ETF instead of another investment such as a mutual fund or individual stock. “There are subtle differences that need to be explained,” says Chris Hogg, director of the iShares division of Toronto-based BlackRock Canada Asset Management Ltd. Toronto, “and that’s a key part of the education.” Pointing out the differences among investment products will likely lead to a conversation about fees. Although fees for plain vanilla ETFs have traditionally been lower than those for comparable mutual funds, says Hamza, the launch of more complicated ETFs in recent years mean higher costs that are often comparable to other products. “At one point early on it was a black and white discussion — it’s not now,” he says. “It’s a multi-layered one.” In an event, tackling the fee conversation right away can help to deepen client relationships, he says, because it presents an opportunity to demonstrate your knowledge and show your value as an advisor. To make the process a little easier, consider using educational resources available either through your firm, an ETF provider or an association such as the IEF. For example, the iShares launched its educational resource platform in October 2011 to offer resources to advisors and clients alike. “We know that it’s important for investors and advisors to stay armed with the right tools and the right information to make proper decisions,” says Hogg. “In fact, we think one of the biggest challenges we have in terms of the growth of the industry is both education and awareness.” Resources offered by iShares include a mobile app and an ETF Toolkit, which offers tips, techniques and tools about the products, says Hogg. The company is also building awareness about ETFs by way of social media outlets such as Twitter, a blog and YouTube. Through these platforms advisors can forward links or direct clients to articles or videos regarding ETFs. Sending information electronically is also a successful tactic used by Jackson. Through a weekly e-newsletter Jackson, who is part of a team of nine, provides clients with regular updates on ETFs (in addition to other relevant topics, such as retirement planning) through articles from the media or ETF providers. Joseph Wu, an associate with the portfolio advisory group in Royal Bank of Canada’s wealth management division in Toronto, also finds that the clients of the advisors he works with like to learn about ETFs via short, easy-to-read articles. “Something that’s around two to four pages, uses terms that are easily understood and easy to explain,” says Wu. “Those are the kinds of tools and articles that [advisors are] looking for.” Some clients may prefer a little more face time when learning the ins-and-outs of ETFs. Wu says that, over the past two to three years, he has received an increasing number of requests from advisors to do presentations on ETFs for clients. Says Wu: “This is a trend that is probably going to be in place for some time longer.” The presentations given by advisory group members cover everything from the overall ETF market to tips on how the products can fit into a client’s portfolio. Jackson has also found seminars to be a useful educational tool. Four or five times a year, he and his team host “high-end client events,” which include educational presentations. Each seminar discusses ETFs to some extent and is put on with the help of an ETF provider. Two or three of these yearly events focus specifically on ETFs. Videos can also be strong educational resources for clients who can’t make it out to events and who prefer to learn by listening rather than by reading. iShares provides advisors and clients with two to three minute educational videos through its website and YouTube channel. Says Hogg: “We’re continuing to look at that [media] form to deliver content that’s easily digestible yet provides good information and instruction.” The IEF has also had success with educational videos. “For a lot of people that are learning about [ETFs],” says Hamza, “the videos are probably the easiest way to learn about the topic.” The IEF videos feature third-party experts discussing a number of topics including the difference between active and passive investing. This is part one of a three-part web-exclusive special feature accompanying Investment Executive’s ETF Guide for Financial Advisors.last_img

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