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A sage perspective on Canada’s Investment Fund Industry

MIJ conversation with Pat Dunwoody ranges from the changing industry landscape, advice for advisors, diversity and inclusion and women in financial services.

Podcast highlights

5:45 ETF landscape

8:00 VEXO

10:05 ETF Myth busting

14:30 Mutual Funds and ETF’s

19:00 Big Banks

22:00 End user benefits

25:10 Women, networking and inclusion

34:18 Advisors relationship with the spouse

37:44 Advisor value proposition

41:00 Wrap up

Pat Dunwoody.png

About Pat.

Pat is the Executive Director of the Canadian ETF Association, which is the first (and only) ETF Association in the world.  She has spent over 35 years in the Financial Services industry as a client and relationship-focused executive with an in-depth background in all aspects of the industry.

Some of her past roles include:

  • Vice President, Member Services & Communications at Investment Funds institute of Canada 
  • Vice President, Business Development & Market Intelligence at IFDS
  • Vice President, Service and Quality at AIM Funds Management Inc.
  • Director of Customer Relations and Distributor Services at Fidelity Investments Canada 

She has been an active member on many industry committees including: 

  • Co-chair of the first Industry Standards Committees
  • Participation on FundSERV committees from the day it was launched and currently is a member of the FundSERV Standards Steering Committee
  • CCMA Committees

Pat is also actively involved in her community:

  • Board Chair, Community Living Dufferin
    • Chair of the Governance Committee
  • Board member, Prosper Canada
    • Chair of the Governance Committee

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From skiing, to wine tasting to visiting the zoo to eating at a nice restaurant the choice is yours. Entering is simple, all you have to do leave a review of your favourite part of the podcast and share this post on social using the hashtag #MIJPat. This will enter you into a random draw and we will announce the winner at the end of the season.
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Transcript

Rod: Hello! Welcome to today's episode of the Modern Investor Journey. My name is Rod Heard and I'm co-host with my partner Art Johnson. And we're delighted today to be welcoming Pat Dunwoody, who's the executive director of the Canadian ETF Association. Pat also does some volunteer work with Prosper Canada, where she sits on the Board of Community Living for Dufferin, where she's the Chair of the Board.

Welcome, Pat. It's really delightful to have you on the show.

Pat: Thank you.

Art: Rod and I have been on this journey of starting SmartBe and also coming into the ETF business and you are absolutely one of the shining lights that we've come across. Your dedication to this space in Canada, which I think we would all say at times is beguiling, challenging, but interesting.

I can't wait to hear your story today, so that's going to be a lot of fun.

Rod: You've had a very rich career in the financial services industry. And maybe we want to start by telling us a little bit about your journey and as you go through that, how did you get involved with ETFs and how did you land up in the executive director role?

Pat: Well it wasn't the logical start. I graduated university in hotel management, so that's not the normal route people take. But I ended up just taking a customer service job to start earning some money. And by chance it was in the mutual fund industry answering phone calls. My first week with not really understanding what a mutual fund was, was interesting to say the least.

And that was in the mid-80s. So it was just as mutual funds were really getting going. So I had the luxury of a lot of different and varied jobs at different companies because it was such a small community. You knew pretty much everybody in the administration side of the mutual fund world. I get bored easily, so when I wanted to change my job and there wasn't anything where I was, I was able to reach out to all my contacts and just ask for something. And I was able to go from customer service to business analysis, to dealer services, to running a call centre, mainly because of the contacts and because of the reputation I built up. I ended about seven years ago at IFEC where I spent five years.

When I left there I was looking for some contract work and again a friend reached out and said there was a few ETF providers that had just started up an association and that maybe I'd want to speak to them to see if I could help them with their journey. And what I found out was their setting up of an association was filing all the legal papers and a press release.

It was fun because we did everything from launching the website to actually building up bylaws and building the process. So, yeah, I've been with them from the very beginning. So it's been a fun build from three ETF providers to where we are now.

Rod: Well, tell us a little bit about what The Canadian ETF Association's mandate is, what you're engaged in, and how the organization functions.

Pat: It's a very small organization. It's just me. I have a couple of people on contract to help out with technical things and writing because as much as I can write, I'm a fairly slow writer, which doesn't usually work. So I pull in people when I need to help out. And really we do everything from stem to stern.

So we try to work with other associations when there is common issues. Knock wood, the ETF side of the industry hasn't had a lot of policy issues to date. So we've been able to really build some strong relationships with the regulators and the government officials in the hopes that if there is an issue that we can build on those. Earlier this year we updated our mandate.

So now it's to support the growth, sustainability, and integrity of the ETF industry. And so what that allows us to do is now we're operationalizing it. Based on those three words, we don't want to educate advisors and we don't think that's our place, but we're certainly very concerned about ensuring that accurate information is out there.

So we spend a great deal of time debunking myths and meeting with advisors and dealerships to ensure that they have all the information they need to understand the product and the industry. And so we'll be continuing that journey into 2021 in a variety of ways, including a series of webinars, substantially more information that will go on our website and go on social media. Again, just to ensure the information is out there.

Sustainability and integrity are a little bit different. Sustainability is more on the operational side. You know, we've grown between 20% and 25% a year over the last 10 years. My concern is that if the growth continues, I want to make sure that operationally and through the back offices, we can sustain that growth without any hiccups and to date everything looks fine. But we continue to monitor that and look around the world to see if there's any services or functions that we could bring in to assist. And then integrity it's a bit more difficult just because we don't have all of the ETF providers as members. You know, I do reach out to as many as I can and offer support. Certainly raise the idea with them that if they have a question or a concern with a rule or regulation that they come to us first, and have a discussion with us so that we potentially either help them, or we may have had the conversation with the regulator before and can provide them with the information.

And that's happened actually a couple of times in the last few months. So I'm confident that we'll be able to ensure the integrity stays strong.

Art: That's a great mandate, Pat, because Canada is a unique place. Unique regulatory situation. And you know, there is an oligopoly with the banks. Compared to other markets where ETFs have kind of taken off Canada's still in the hopeful stage. There is tremendous growth. Can you just speak about your views on the landscape of Canada? You've been slugging away at this for awhile.

Pat: The uphill battle we've had in the past is that it's not just a question of introducing a new product to a lot of advisors.

It's we have to introduce the concept of fee-based accounts first to make it legitimate for them to be able to sell. I mean, we're not expecting them to sell a product without earning any kind of revenue. So they have to look at their business model entirety and make the decision to change some or all of their accounts over to fee-based before they even consider ETF.

So that's where we've seen, I think, the consideration starting to increase now because as more and more advisors flip some of their accounts, the appropriate ones over to fee-based, it becomes more apparent that clients are interested in lower cost products. And I'm not saying that the overall cost to hold the product is going to be less.

When you have a fee-based account and you're selling products that are substantively lower cost than the MER, I think clients appreciate that because they can see exactly what they're paying for. So, you know, they know exactly how much the MER is, which is usually very small on the actual product, but then they see the line item of what they're paying their advisor in totality.

And usually, unless the account is substantive, the amount isn't that high. So it's not going to scare a client off. We've also started finally to see the MFDA channel enter into the ETF world. When I first started at the Association my first meeting was with the Executive Director of the Federation of Mutual Fund Dealers who has wanted to get ETFs into the hands of the MFDA firms for years.

Because ETFs are an investment funds product, so by regulation the MFDA firms can sell them. The issue was access. It was always access. So we spent a great deal of time with an industry committee to build a process to allow that, and then the firm that was running that project changed their mind. So we sort of had to start all over again, but it's out there now.

So there's a company called Vexo that will do the introduction and the process between an MFDA firm and an IIROC firm. And then two or three of the back office providers at the MFDA firms use are now able to do the same. COVID sort of slowed the implementation and launches down a lot, but there's a few out there that are selling and I know of three more that are going to launch before the end of the year.

So I think as that rolls out I think we'll see a substantial increase in sales.

Art: And just to back up for our listeners, in Canada there are two regulatory bodies. One is called the IIROC, which is really typically the brokerage firms. And the other one is called the MFDA, which is the mutual fund dealers association.

And these are typically people that are not selling stocks. We're not licensed to sell socks. But they could sell mutual funds on behalf of their clients. One of the bigger challenges that Pat is referring to, is that a large portion of the probable clients that could benefit the most in Canada from the lower cost ETFs, the clients reside in the MFDA channel. And having the ability for those advisors to easily get access to this lower cost product could have a significant impact on the Canadian investment landscape. But the tools and the regulations to get them to do that have been a true barrier to that. And just the cost.

Pat: There's been a lot of technical issues, but it is growing. I mean, historically our industry in Canada has always been commission-based and products are sold to clients as opposed to clients really picking and choosing based on a lot of cost priorities. As an example, we're still only 14% of the mutual fund industry and assets in the ETF side, but that's doubled in five years.

So we are going to continue seeing that growth for sure.

Rod: Terrific news from my perspective. Pat, in some of your opening comments you were talking about debunking myths. I'm interested to learn from your perspective what some of those myths are.

Pat: I actually just heard one in some research we did this year again. Which was that ETFs are passive and, you know, there's some that are passive, but really the majority of ETFs that have launched over the last say two or three years have been active or factor based.

So they're not just an ETF that follows an index so that it's, you know, it's very passive it's whatever the index does. The ETF does the same. There's a lot more active products that are being launched. Specifically by the mutual fund companies, because that's where their expertise is. So they're launching ETFs that sort of mimic what their mutual funds do, but just at a substantively lower price.

Art: In your recent research, I guess the one for me of a light bulb went off in trying to solve this conundrum so people can get better access and all of these things. But one of the big light bulbs for me was that in the Environics research, it was Robert Steele, I believe. He said that advisors and investors, they kind of know what an ETF is, but they still don't know where they go in a portfolio and how to use them. And that was a real light bulb for me. Like I, you know, I think it's we always talk about the costs and various things, but they're very familiar because of a long history of understanding where a mutual fund would go, what their expectations are, various things like that. So I think solving the hurdle for them on where they actually go in a portfolio, what they replace, there has to be a huge education around that.

Can you speak to that a little bit?

Pat: Yeah. I mean, a lot of advisors have been working with their clients on selecting sort of the best fund managers. Active after product managers for years. And then the diversity that they're showing is based on, you know, having multiple managers and multiple types of products. Whether it's US equity, Canadian equity, global, and then bonds. Canada has been, and it's probably the same in a lot of countries, we have a huge home bias. So when you look at most. Canadian's portfolios they may have six different mutual funds in their portfolio and they look different on the surface, but because we are very concentrated in our equity listings in Canada, in either the resource world or the financial world, their concentration in what they own

in the portfolio is usually too concentrated in those two areas. Is that what I'll say. So, but you don't know that when you're looking at the name of the fund, you may think that there's much more diversity. Whereas at least with, I think ETFs, you know, usually by name or at least the line below that in terms of the factors that they use exactly what they invest in.

And so you can very easily remove that concentration risk and diversify much easier because there are so many ETFs that are fairly narrowly focused. So you can have a couple of really broad based equity ETFs that are either global, North American, American, Canadian and you know exactly what's in them because it's like S&P 500 or the TSX.

And then you can have other products that are not necessarily part of those listings so that your diversity is fairly easy to manage. And what I think advisors are having trouble with is, you know, they've spent 20 years talking to their clients about being the best product selector.

And what we're trying to say is that we don't believe that that's their best skill. Their best skill is working with clients to save financial planning, tax planning, estate planning, making sure they have enough for retirement and maybe leave the actual product selection to others, whether it's a portfolio manager themselves or just select based on the indexes they want to follow.

Art: We've done ourselves a big disservice in the country because really you're absolutely right. The advisor's main role is that, and probably the top role is behavioural coaching. And yet we've convinced every client it is about product and picking these products and various things like that.

So it's a difficult transition.

Pat: We see it happening slowly. It's just a question of advisors, you know, wanting to go through that process.

Rod: What's the evidence that you see Pat? Is it through conversations with advisors? Is it through just the actual percentage growth of ETFs over mutual funds year over year? What's giving you the confidence that both from a retail investor perspective that the Canadian investor is understanding this sea change, as well as in the advisor space?

Pat: Asset growth is one thing, but I mean it's hard because unlike mutual funds, ETFs, we don't know other than the firms that buy the products, we don't know how many or who at the advisor level, the beneficial owner level, we don't know who owns our products.

It's difficult to know whether it's just, you know, certain individuals buying more or more individuals buying generally. And then there's also the division of institutional versus retail that there is a substantive number of institutions that use ETFs in their pension funds or that level. So we're trying to balance that out, but I think certainly the interest that we're seeing,

the numbers, or the volume of ETF conferences for advisors has increased from when I started at 1 to, I think, there were 11 this year. So yeah, people aren't going to put on conferences unless they know there's interest for people to sign in and listen. And I think just the volume of articles and magazines and newspaper inserts that have gone out.

We believe that clients are starting to at least ask their advisors what are ETFs and starting that conversation. So it's a slow grow, but I think once advisors get comfortable with some of the products, it's a really easy sell because they're not going to lose revenue because they can still charge their commission rate.

But it'll be that the product itself is so inexpensive, most of them, that the client's going to save money that way just because the management fee is so low.

Art: You were at IFIC, which is the Investment Fund Industry in Canada. And you went through that whole journey with the mutual funds. How different is this ETF compared to the mutual funds?

There's obviously not as much renumeration so that you can drive sales, is that we're in the mutual funds. But is it a similar journey to what you saw Pat? Any insight on that?

Pat: It's very different because the product manufacturers on the ETF side absolutely don't have the kind of money that the mutual fund companies have.

It is difficult to reach as, you know, as many advisors as we want. And the other major issue is what I've just recently mentioned is we don't know the advisors or the investors that are buying our products. One of the brokers may own a million units of a specific ETF, but we don't know what advisors have purchased them.

So it is difficult to reach out to those advisors and talk to them about other products that we may, you know, that firm may have to sell. So that's the biggest issue that we have is that it's not easy to market to advisors because we don't specifically know who they are. And the amount of money that the firms have is substantively lower.

So I think what you've seen we've done a lot more online, out of necessity really. You know, before COVID started, I think the product providers and ourselves have started to do a lot more outreach online and build up databases of advisers that show interest, and then we can reach back out to them. But those have been the two major issues.

And then selfishly, I guess, it's been easier for me on the ETF side, because there were a lot of investor advocates on the mutual fund side that had concerns with the commissions that were being charged on funds and certainly the deferred sales charge commission. So I was always having to have discussions with the investor advocates and with some of the reporters and knock wood right now, ETFs are still a positive view with those people.

So I haven't had to defend the product near as much.

Rod: That's terrific. Pat you've mentioned a couple of things there that were interesting. The one that caught my attention was the disparity in funding from the new asset managers that are in this ETF space to the old mutual fund providers. Yet we see many of the big banks right now are launching full suites of ETFs within their institutions.

And we all know that the banks in Canada control, you know, I don't know what the specific fact is, but I'm just going to say 80% plus of the distribution in the country. How do you think the banks are thinking about this transition from mutual funds to ETFs and reconciling an old world well-funded in a new world that's up and coming?

Pat: I mean, a lot of those bank brokers, the individuals, also sell a lot of individual stocks and bonds. So they will certainly be managing their assets more carefully, I think. The banks have launched because I think they realized that ETFs are the way of the future and what they will have to do is: one, figure out a way of getting ETFs into the bank branches.

I don't believe they've figured that out yet, but they're going to have to, I believe offer ETFs to their bank clients as well. It is as much as there is less gross revenue coming in from the ETF side, it's also a lot less expensive to run because there's no transfer agencies. So as I said, we don't know the clients or the advisors who sell the product or who own the product.

So we don't have to have a huge database of all of the transactions and the clients and continually manage that. And that's a huge expense for the mutual fund companies. So you take that expense out. So there is still revenue. The net is absolutely lower, but I think going forward that's just going to be the way of the world.

So there'll be lowering of expectations internally on the mutual fund side. People that have stayed in that industry for the last 20 years have done very well for themselves on both the product side and the sales side. And as much as, you know, people on the ETF side have done well as the same time, I don't think it's to the same extent.

So tightening of the belt, I guess all around will happen.

Art: I think ETFs are used probably about 9% in the average advisors book.

Pat: It ranges between 9 and 11. Depending on, you know, the kind of surveys we do. There's 14% of the assets under administration in the ETF side versus mutual funds, but only between 9% and say we'll use the average 10%.

So we know that, it appears, that once clients start buying ETFs they increase their volume because it's not the same number of clients that own them. And that's the biggest opportunity we believe we have is, you know, we've got to this level so quickly and we still are only 10% of the assets.

Art: So why should the Canadian customer care if the advisor uses ETFs or doesn't use them, or, you know, we should, they seek out someone who uses a hundred percent ETFs.

Like what are the true benefits to the disruption in this product? That you see, why should the end user really start trying to find out people who are amenable to this change?

Pat: So I think there's two reasons for that. The first is I think it's tied to having the fee-based accounts. I mean, ETFs are all about transparency.

So we want clients to truly understand how much their investments cost and to either buy, hold and sell. And on an ETF, or a fee-based account, it's much easier to see that. And I think the idea of passive versus active, it's been an argument from, you know, day one. I think that index funds were launched on the mutual fund side, but there's so many research studies that have been done over the years that show it's not necessarily the specific products that you own that make you the money. It's ensuring that you're in the right asset allocation during periods of time that make you the money. So if that's the case, then why not be in the right asset allocation model, but at the lowest cost products available?

Art: What Pat is proposing is to actually lower your probable cost to the thing that matters most by maybe about 70%.

You know, going from a 1% fee on the mutual fund, which is a belt tightening fee compared to where they used to be, to maybe 20 basis points or 15 basis points. And what that means for the end user is that even if you're the most amazing manager in the world, you still have to beat 80 basis points of return when you get up every single day to get to what Pat is suggesting.

And the reality is if we look at the evidence, I think it's pretty rough in Canada. I think the SPIVA report came out and I think 99% of Canadian active managers have underperformed the S&P over the last 10 years. So your chances are 1% or 2% to find that amazing person to beat what Pat is proposing.

And then even when they do that, they only beat by 1% or something. So you probably end up in a deficit of not using ETFs in your whole portfolio. Probably 2% to 3% between behaviour and a couple of mismanagers. And so it is a huge, huge undertaking to bring this into the product, but the sense of it makes so much sense in every way.

Pat: Another part of one of the Environics studies that we saw last year was also that advisors, you know, when they listed off all of the work they do for their clients, the product selection is the one area that they don't like doing the most. And it's usually to what you've just said where they're not as successful as other areas.

So with those two statements combined, why not just go with a very easy to explain index tracking product?

Rod: It's fascinating. So I'd like to shift gears a little bit, Pat. It's a been a very enlightening around this whole contrast between MFDA and the ETFs. One of the things that I find very interesting about your career is that I too was a mid -80s grad, so we've had a few cycles in the industry and I'd like to understand your perspective as a woman

growing up through the financial services industry. And I know you're involved with women in ETFs and can you help our listeners understand how the landscape in Canada is changing? Is COVID accelerating things? Are we seeing the types of change that you'd like to see for us as a nation and as an industry?

Pat: I have to say I was probably one of the few people growing up that was actually looking forward to having my 30th birthday. Because being young and blonde and female in the financial services industry in the 80s and 90s was difficult. You certainly were given, you know, if you did a good job, you were getting the respect and, you know, you were given promotions, but there was definitively a glass ceiling and where the glass ceiling cracked a little bit it was within HR, marketing, compliance, you know, very standard roles. You could become a VP or maybe an SVP, but those are the roles that usually didn't pop up into the top executive roles. I guess my career, because I was more interested in what I did day to day than sort of rising the ranks, I did a lot of parallel shifts from firm to firm to become quite the generalist. I think over the, you know, the first 20 years of my career, because I was more interested in having fun and learning than actually climbing the ladder. Now that being said, there are certainly ladders that are climbed because you are a generalist and you can, you know, bring a lot of education to the rules.

But it was frustrating a lot of times because you could go into certain associations that still have them on the wall, unfortunately, and look at the chairs of the boards over the last 30 years and for one of them, I think there were two women and that's fairly recently. And the other, I think there was maybe three.

And on top of that, I would say 99% of them were also white and, you know, over 45 or 50. So you always battle the old white man syndrome. Now, has that changed? I think, yes. There's a lot more women and, you know, kudos to Laurentian that has their first female CEO. And I think that will come as they are getting more and more, you know, they're rising in the ranks now.

They're actually being put in the pool of potential hires now. But I think it's probably another generation out before we'll see absolute equal status women in ETFs and women in capital markets and other organizations like that are there specifically to help women climb the ranks, learn to how to climb the ranks, learn how to mentor, and mentor, you know, those that are coming up.

And I think most importantly, one of the skillsets that is in dire need for propping up is networking. When I first talked about, you know, my first 10 years in the industry, it was easy to network because the industry was really small. So we had industry parties where everybody from the industry could fit in one location.

Now, obviously that's not possible. So I think people really have to learn how to network and not necessarily when you're looking for a job, but doing informational interviews or informational discussions with people to find out about different sectors of the industry and different companies. Just for future reference.

I've had people cold call me, not because they know me, but because of my position at the association. And they just want to talk to me about the industry. I will never say no to that. And you know, most of them have been able to go on and get roles or I will introduce them to somebody else and they will introduce. So as much as I think there's a lot of women that have done well we've got a long way to go. I've been watching a lot of conferences recently on integration and, you know, issues of the various industries. The continuation of Black Lives Matter, and where are the issues. I had said to somebody I'd never noticed a lack of diversity in our industry.

There were always, you know, women and different colours of skin at the table. But when I really started to look at it this summer there were a lot of East Asians, there was a lot of Asian people, there’s still a lack of broad diversity with Blacks. And I didn't realize it until I really, really studied it.

And so as much as, you know, women in ETF are helping women, we're also very conscious because we have men as members as well that I think diversity inclusiveness is broader than just women.

Art: That's a good point, Pat. Our industry has a bad record, I think, on almost like a bad marriage in the sense where you have pink and blue jobs.

And like you said, the traditional, you know, it's just the unfortunate part of the industry is women have been relegated to the pink jobs in compliance and operations and various things, and they have not been able to muscle their way into the other ones. And I've been in the business since '82.

So I'm quite old as well. One thing-

Rod: A lot older than Pat and I that's for sure. We said mid-80s, not early 80s!

Art: I'm ancient.

Rod: Pat's still 36. Come on.

Art: I know.

But it is staggering. Like in the earlier days, I would say, that I think there were more women in sales. One of the problems we've had in the industry is that as we've gone to specialization and professionalization, a lot of the women that are graduating out of university are going into law, medicine, not into finance in the same way. And that I think that's been an additional barrier to even women getting in. They just don't see a fun path in finance.

Rod: But as we were chatting in our last chat, Pat, you had indicated that you're quite engaged with the groups of young women in a mentorship, sort of in a networking environment in finance.

And I think you recognize that there is a bit of a change happening right now. Is that reasonable?

Pat: It is. We started about six years ago doing sort of annual presentations to the local universities, specifically the Masters of Finance classes. Selfishly as an industry we knew we were growing and we knew we needed to ensure that we could attract as many qualified people as we could. And given the type of industry we are, we don't have a lot of our wholesalers and the people that sell and market to the industry. It's a little bit different because we also have to talk to the industry before we talk about the product. So having a finance background or a CFA really helps our wholesalers and our marketing teams.

We started doing those presentations to a couple of the schools. This year, we're doing the presentations remotely, obviously, to seven schools. And what I've noticed is the number of women has increased. I don't want to say dramatically, but very noticeably in each class that we present to. It's interesting that the first few years I would say there was literally only a handful of, you know, multiple generational Canadians that were in that class. They were usually first and second generation students. Finance. Business is different. Now that's changed as well. So I think there is an understanding maybe that having an education in finance that you can't have a broader career. Women in ETFs is doing the same thing. It's reaching out to the various universities just to let them know that even if you don't have a finance background, the ETF industry is like any other industry and you can have a career in sales and marketing and compliance and law and whatever your education is.

And this is, you know, a growing industry. So wouldn't you want to start out while it's still small? It is still an uphill battle, I think for sure.

Rod: So, I guess we're pretty fortunate to have our own Prithy Serrao as a CFA. She's a rare breed. You know, the other thing that we touched on in the pre-meeting that I found interesting was just in this same sphere of gender inclusion, was just around how the advisor client relationship is morphing in that the need to engage with the partnership of the couple in both the man and the woman, and this concept that traditionally in our, you know, Western European evolution in Canada that the man has been in charge of the finances and that the relationship on the investments and the financial planning have typically been patriarchal.

Where there is a shift and a move much more to either a dual responsibility or even more of a matriarchal perspective. Do you have any perspectives there?

Pat: It has become a huge talking point and I can understand how we got where we are. I mean, a lot of couples, you know, to run a household you divide and conquer the workload. And, fortunately or unfortunately, the men normally took on the management of the financials outside of the household.

Rod: That's sad because we're usually pretty crummy at it.

Art: Like the most overconfident-

Pat: Yeah, overconfident!

Art: The evidence says we're the most over-confident spouse. We should not be doing that job.

Pat: Well, and the issue has become, and this is why you see I think more and more people speaking to it, is the realization that women are living longer than men.

In most cases. And therefore they're ending up, you know, as widows with no understanding of the amount of money they have and how they are going to live for the remainder of their lives. So there's a lot of consultancies out there now talking to advisory firms and saying, you don't have to ensure that both are making the decision, but you have to ensure that the other spouse at least understands what's going on at a certain level. So that if something does happen, they're starting at least halfway up the ladder in knowledge, because what the stats are showing is that when the spouse that manages the relationship with the advisor passes away first, I think the numbers are like 80% or 85% of the time the remaining spouse or the wife doesn't remain with that advisor. One, because they don't have a relationship with them. They don't understand what's going on. And then all of a sudden they really do feel estranged from that whole world. So then they look for somebody who can explain things to them and bring them up to speed. And that goes to, I think, with the next generation, you don't need to speak to the next generation but you need to understand at least who they are as an advisor.

For that same reason, if you want to continue holding those assets, if something happens to your clients, you have to be able to speak to those individuals that inherit the money. So it's, yeah, as I said, it's not a question of ensuring that, you know, the partners are totally in agreement and making decisions together, but you absolutely have to include them in the conversation. And pointedly asked, you know, the wife or the husband, whoever's not the lead in the relationship, ask them questions ensuring that they at least understand the decisions that are being made.

Rod: It kind of comes back to that whole concept of behavioural coach, but, with the couple versus with the individual.

Art: It's lovely to hear, like Pat's been around the industry a long time, such as I have, and we've seen tremendous change.

I think, you know, she's taken all that experience and kind of strength and hope. And I think going in the right direction in the ETF business. And I think the other takeaway probably from this conversation is that advisors are playing a very dangerous game if 9% of their portfolios in ETFs and a 30 year old inherits the portfolio. 1000% will probably be hesitant to buy a mutual fund or an ETF.

Rod: Just like the TV ads. “You're not using dad's guy or are you?”

Art: And, you know, but it is wonderful to have people in the industry like Pat, who I'm glad she has a curious mind and I'm glad she has no time to kind of do stuff that doesn't work for her.

And I think she hit on something too. There's a change in the soul of the advice in Canada. A lot of the compensation issues in the mutual fund business destroys the soul of the relationship and the trust of the relationship. Having to defend that in the past is pretty soul destroying. Having to, it's not that it's a bad thing.

You can make a case that that compensation is there. It's just done in a very indirect and opaque way. And I think, you know, one of the key points going forward and you can hear it in Pat is it's a very difficult thing on the soul when things aren't transparent. And taking that forward, I think is one of the big takeaways for me from this conversation.

Pat: Two short things and to add on to what was just said. Advisers tend, I think, to be afraid because the stats still show that clients don't know what they're paying for their investments.

And so as much as advisors think they do and think they have told them it's not staying with the investor. But the numbers aren't scary. So I think for them to be able to show their value and their value proposition to their clients, I think that's a really healthy conversation and I don't think they should be afraid of it.

And then on the other side, for people who are looking for a new career or growth in their career, all I can say is to network as much as you can, to join associations, most of them have mentoring groups that you can join as well. I'm always continually wanting to learn. So if I'm not learning something in the job I'm doing, I'm taking courses in the evenings just to satisfy that itch for continual knowledge.

So I would think the industry itself is going to change dramatically over the next 10 to 15 years. And I would say that's the investment funds industry. So I think people really need to get prepared for that. And whether that's, you know, hardcore knowledge or getting different experience within your shop, I think it makes perfect sense because you're, you know, they're going to need people in every aspect. And it's always fun to be in an upswing in an industry, in a company. So start picking the companies in the aspects of the industry you like and start finding people in that area and have conversations with them.

Rod: Such sage advice, Pat. You know it's so delightful to have you on the other end of the line.

I remember the first time we met two and a half years ago when I was new to the industry. You just have this way about you. It's very clear that you're skilled at networking, that you're very thoughtful, and it's been such a great opportunity to listen to some of your experience and the knowledge and wisdom that you've gained.

I kind of took away three things from our conversation today. The first thing that you said that really struck me was if you're an advisor and you want to be current and move forward and have a successful career, you need to be thinking about moving your book towards a fee-based structure. Like that's just sort of table stakes as the first step to the evolution. The second thing that I was really quite encouraged about seems to be this industry smush of mutual funds and ETFs giving access to the ETF universe, which is more transparent, lower cost, just behaves like a stock to the whole group of, I think there's 90,000 plus of mutual fund advisors in the Canadian universe.

So that to me speaks of evolution and eliminating the camps that have existed in the past and your comment around Vexo and, you know, the introduction and process to IIROC and MFDA stuck with me. And then, you know, the last piece was, both Art and I are doubly blessed. We have daughters. Art is triply blessed that they're twins and in teenage years and mine are a little bit older. And one of them is in the banking industry. She's a corporate commercial banker. But just the fact that there is hope in the future in the industry for women, and that the traditions of the past are starting to change. That this time of COVID and Black Lives Matter has really sort of taken us from a perspective of understanding that there's challenges and problems to actually doing things and solving them. I listened to a fascinating talk hat Deborah Yedlin was moderating, with Jean Charest and some other PhD experts on pluralism. And this whole concept that Canada can be a leader in pluralism really, really strikes with me.

Today we've been chatting with Pat Dunwoody. My name's Rod Heard. I'm co-founder with my partner, Art Johnson. You've been listening to the Modern Investor Journey. We've been having a great conversation with Pat who is the Executive Director of the Canadian ETF Association. She sits on the board of Prosper Canada.

And chairs the Board of Community Living for Dufferin. Pat, thanks so much for your time and energy. I think it's been a terrific show that our listeners will really resonate with. And, you know, if you're interested more about SmartBe, visit us at our website, we're starting to get much more engaged in social media.

We have a piece with Wealth Aspirations where we're talking to people in the community and, this modern investor journey is something that's here for awhile. And we appreciate you tuning in.

Art: Thanks again, Pat.

Pat: Thank you.

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