The Growth of ETFs and the impact to the Financial Services Industry Pat Dunwoody Executive Director, CETFA

The Global ETF Landscape

The Canadian ETF Landscape

The Evolution of Innovation in the ETF Marketplace Simple Beta Equal Weight, Sector, etc. Actively Managed Factor Beta

Predicted Future Growth Globally 1. PwC Global, 2nd Annual Global Exchange Traded Funds (ETFs) Survey , “ETFs: A roadmap to growth” (2016)

Projected Growth of Mutual Funds and ETFs

Trends in dollars going to ETFs and where new dollars are going   73:1 38:1 12:1

Difference between ETFs and Mutual Funds   ETFs Mutual Funds Access Units bought and sold through a brokerage service Units bought and sold through the fund manager or a broker/dealer Pricing Unit prices set by the market throughout the day NAV at the end of the day Asset-Weighted MERS Canadian Equity 0.30% Canadian Bond 0.27% Equity 1.06% Canadian Bond 0.64% Fund Transaction Costs Brokerage commissions and bid-ask spreads on each direct purchase and sale None if the sale or buy is done directly with the fund. Depending on the class of shares purchased (DSC,LSC, FE) Dividend Reinvestments Availability depends on the fund sponsor and broker – and there may be a charge for the service Available at no cost Clients Service Provided by the broker Provided by the broker and the fund manager

Significant drivers of ETF growth PwC 2016 ETF Survey 80% 75% 72% 70% 70% 69% 70% 60% 54% 53% 51% 50% 42% 40% 36% 30% 20% 10% 0% Product benefits Adoption by institutional investors Adoption by advisors and individual investors Penetrate the retirement market Education on ETFs 2015 2016

Trends in Canadian ETFs Fixed income ETFs are increasingly being used by investors for portfolio construction Net cash flows have changed month to month in different types of ETFs, further illustrating the use of ETFs to manage risk Solutions based ETFs are also common in Canada with products such as covered call strategies, bond and preferred share ladders Similar to the U.S. and Europe, smart beta ETFs continue to gain traction in Canada and many of the new ETFs are true active funds ETFs are typically first movers for market trends

Improving Investor Trust and Confidence According to the CFA Society of Toronto - The most important actions firms can take to improve investor trust and confidence

The Future of ETFs The line between passive and active will become more blurred As is the line between mutual funds and ETFs Innovation will continue to grow and address the varying needs of investors Greater penetration in ETF users Greater number of providers: Dec 2015 – 12, Dec 2016 – 18 and at the end of August there are 24 Price competition on traditional market capitalization weighted products Additional lines of distribution – robo advisors, MFDA Continued growth in the use of ETFs in pension and other institutional investing Sub-advising has grown

Current and Future Regulatory Changes MFDA access – the ability for MFDA firms to sell ETFs ETF Fact Form - will be required to be sent post trade Risk Ratings – changing to average Standard Deviation over a 10 year period Tax Update – most are identical to mutual fund issues CRM2 - any impact was neutral tending to negative Embedded Commissions – there are only 2 ETF Providers left that offer Fee based accounts – for growth to accelerate fee-based accounts have to be the norm

Canadian ETF Association 2017 Activities – remaining October 24th Breakfast - ESG: The Future of Investing 2 University Roundtables – Toronto and London An updated Web Site with a Job Board 2018 Activities 4-5 Conferences across the country 4 Breakfasts on targeted subjects Webinars when needed More detailed and “user-friendly” statistics Additional social media and print media articles

Thank you Pat Dunwoody patdunwoody@cetfa.ca 416-260-4714 This CE activity has been approved by FPSC® as meeting the minimum requirements for CE Approval as outlined within the FPSC Continuing Education Guidelines. The views and opinions expressed in this presentation are those of the presenter/content author and do not necessarily reflect the views of Financial Planning Standards Council (FPSC).