Mutual Funds

‘Alternative mutual funds deserve to be in the toolbox’

“Alternative investments do provide diversification,” Beyer said. “They provide alpha, they can incrementally increase your risk-adjusted returns … there’s a variety of benefits to being able to add alternative strategies into a portfolio, and I think it was a bit unfair that retail investors didn’t have access to them for so long.”

Even with the introduction of liquid alts in 2019, the Canadian investment space remained uneven. The proficiency requirements for advisors with the Investment Industry Regulatory Organization of Canada (IIROC) already made them informed about shorting, leverage, and other sophisticated strategies that could be interlocked in different ways to create alternative mutual funds. That gave them a head start that for non-IIROC advisors, including those from the MFDA, was exceedingly difficult to overcome.

“You have to realize that the mutual fund space consists of two worlds,” Beyer said. “One is the world of the big banks’ retail business units, where most client-facing individuals are mutual fund-licensed and selling GICs, RRSPs, and more vanilla financial products. The other half of the market, the independent mutual fund dealers, is where you’ll see more interest in offering alternative mutual funds.”

For years, a non-IIROC advisor would have to fulfill an onerous additional proficiency requirement before they could deal in alternative mutual funds. That barrier was lowered in January when the Canadian Securities Administrators (CSA) issued blanket orders that opened a new, less demanding path through bridging courses offered by CSI as well as the IFSE Institute. With its proposed proficiency rule, the MFDA is providing a more solid endorsement for its members to offer liquid alts to clients.

That’s not the only incentive for MFDA members to take the plunge. As Beyer noted, the self-regulator introduced new continuing education requirements that became effective on December 1. An MFDA advisor may choose to satisfy those requirements, as well as their own curiosity, by expanding their professional knowledge into the domain of alternative mutual funds.

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