CSI and IFSE spokespersons say bundling liquid-alts proficiency into basic mutual funds course creates unnecessary burdens
In the wake of a recent consultation by the Mutual Fund Dealers Association of Canada (MFDA) on its proposed Policy 11, some stakeholders have taken issue with the self-regulatory organization’s decision to recognize only two institutions to provide courses for mutual fund advisors to offer liquid alternative funds.
Under the proficiency requirements set out in Policy 11, mutual fund advisors who wish to recommend liquid-alt funds to clients have to pass a bridge course administered by either CSI Global Education or the IFSE Institute. Those who manage to pass one of two other courses offered by CSI, or the courses required to be a portfolio manager-advising representative under NI 31-103, are also recognized.
Critics of the policy have argued that it would be in the best interest of Canada’s professional fund advisors – and by extension, the Canadian investing public – to already incorporate the liquid-alternatives educational materials into basic mutual funds licensing courses. Offering the materials under separate bridging courses, they say, forces an unnecessary cost burden on advisors and dealers that pay for their education.
But according to Marshall Beyer, Senior Director of Credentialing and Licensing Strategy at CSI, things aren’t that simple.
“Together with IFSE, we worked with the CSA and the MFDA to create a common bridge course curriculum for liquid alternatives. Since the CSI already had an alternative strategies course offered for the IIROC channel, it was relatively easy for us to do,” Beyer says. “During those conversations, there was some discussion about including those materials in the mutual-fund licensing course but in the end it was not pursued.”
The problem, he explains, is that half the people who get mutual fund licenses work in retail bank settings.
“Liquid alts are sophisticated products, and most people at retail banks tend to recommend in-house mutual funds,” Beyer says. “It simply doesn’t make sense for us to add 60 pages of liquid-alts content to a 350-page course when it will not be relevant for half the audience. Right now, there’s about six or seven pages’ worth in our mutual fund licensing course, which we think is enough to introduce them to the topic.”
Even among the independent mutual fund dealers, he says the number of people currently dealing in liquid alternatives is growing but still small. Pushing the liquid-alts content into the basic licensing course, Beyer says, would not be aligned with the reality of an MFDA advisor’s practice and furthermore spark pushback from the industry.
According to statistics from the Investment Funds Institute of Canada (IFIC), the total AUM in the Canadian mutual fund industry at the end of 2021 was $2.08 trillion, while total AUM in ETFs was $347 billion. By Beyer’s estimate, only just under $20 billion was in liquid alternatives.
Christina Ashmore, Managing Director at the IFSE Institute, also took the view that designing proficiency courses for financial professionals requires a structured approach.
“We need to be very thoughtful about what goes into the proficiency courses,” Ashmore says. “We consider the knowledge, skills, and abilities that are most applicable to advisors in the routine fulfillment of their responsibilities.”
Putting highly complex and technical liquid alt funds material in the basic mutual fund proficiency course, she says, could skew the curriculum and overemphasize topics that are not applicable for the vast majority of advisors. While she doesn’t disagree with having some coverage of liquid alternatives in the main course, she argues putting it on an equal footing with other more commonly discussed topics like TFSAs and RRSPs takes the focus away from knowledge that mutual fund advisors use on a daily basis and that has the most relevance for their clients.
“I think it’s important to remember as well that proficiency courses and continuing education go hand in hand,” she says. “The goal of the proficiency course really is to build the foundation for advisors entering the industry, and continuing education is available when they progress further in their careers. For advisors who want to incorporate liquid alternatives into their practice, the bridge course is certainly something to consider.”
While liquid alternatives products currently represent a small piece of the Canadian investment industry, both Beyer and Ashmore say the incumbent providers might increase their coverage in the mutual fund licensing course depending on the growth of the products’ popularity over time. Mutual fund advisors who want to meet and exceed expectations in their knowledge of alternatives, Beyer adds, can also take the CSI’s Canadian Securities Course.
And contrary to the criticisms, Beyer maintains that having fewer educational providers in the liquid-alts space isn’t a disadvantage insofar as it helps maintain high standards. If the MFDA were to recognize too many providers, it could either compromise the quality of the education provided, or have to devote excessive regulatory resources to overseeing the course materials.
“They wanted a common standard,” Beyer says. “Once you start to let in all these other providers, you start to lose a bit of control over the quality.”
Ashmore adds: “We see our role as helping the industry protect the interests of investors by providing the education advisors need to be proficient when transacting in these products.”
