Happy clients. Lower fees. Smooth returns. Check.

Finding the right package

As the world increasingly shifts toward virtual communication and digital services, the role of the discretionary Advisor – and the value they bring – has evolved dramatically. While 95% of their time may have previously been spent on trading stocks and money management, there is now an equal focus on both returns and relationship.

As a result, it’s becoming more important to simplify investment management as much as possible, so you can dedicate the time required to build that lasting relationship based on trust and transparency – and enhance the client experience. But it’s not that simple. Advisors are required to demonstrate the logic and rationale behind their sound investment decisions, with a focus on a low cost, strategic asset mix that delivers returns.

ETF-based Portfolios (ETFPs) can be a time-saving, all-in-one solution to address this challenge, while helping clients build a stronger core in their portfolios – for small accounts, or as a complement to other actively managed funds, individual stocks or ETFs. With cost effective access to a set of diversified ETFs through the convenience and flexibility of a mutual fund, ETFPs also provide an element of professional, active management through continuous portfolio monitoring. When used as a building block, they act as a risk adjustment vehicle, with the ability to dial up or down to accommodate clients’ changing risk tolerances without disturbing other positions held.

This quality is particularly vital in this low-rate environment. More than ever before, Advisors are revisiting fixed income sleeves to de-risk portfolios as many clients have expressed disappointment that the so-called “safe portion” had experienced losses at the same time as equities were pulling back. Look at it this way: the need for capital preservation, cash flow, liquidity – and a portfolio parachute – presents a growing opportunity for Advisors. It’s about finding an investment strategy that best meets clients’ needs, and then finding the right package for it to fit your business.

Fixed income portfolios made easy

The BMO Income ETF Portfolio, for example, is a low risk,¹ diversified fixed income solution, with a built-in hedge against inflation. The strategy insulates portfolios during turbulent times (see graph below), delivering an overall smoother, more consistent return path.

BMO Income ETF Portfolio Performance During Market Downturns

Click here to view enlarged image >

The performance of the Corporate Class version of the BMO ETF Portfolio is displayed to show the longer track record.

Source: BMO Global Asset Management, June 2021.

It also helps with the many obstacles Advisors face when building a FI portfolio for clients. Amid the current backdrop, most bonds are at a premium (the coupon is higher than the yield to maturity), and there is an educational component here to explain the difference between the capital loss on the bond vs. the yield generated through coupon payments. Not only does BMO Income ETF Portfolio provide institutional-style access to a broad set of fixed income securities (the inventories bond desk for dealers is currently limited), there is also the benefit of having one consolidated line item that shows total return, instead of price return. This helps simplify and streamline the conversation to focus on what really matters for clients – both capital gains and the income generated from coupons.

As for the spread disadvantage when accessing bonds from a desk, the Fund offers ETF pricing in a mutual fund structure, which allows for flexible cash flow options like systematic withdrawal plans (SWPs) for those with monthly requirements. It also has a corporate class version for ultra high-net-worth clients. Recently, one Advisor I spoke with used the vehicle for someone who just sold a home, and planned to slowly deploy funds into their equity portfolio at certain intervals.

With this all-in-one solution, IAs are able to use the time gained to add value through sophisticated tax and estate planning strategies. Another use case I’ve come across is probate savings: BMO Income ETF Portfolio Class was allocated as a core portion of a client’s non-registered account, while stand-alone fixed income ETFs were placed in a registered account, where there is higher coupon and risk. The Advisor leveraged the ETFP’s active management in the corporate, investment-grade space where coupons are roughly 2%, and also maximized tax-efficiency.

Positive Fee Conversation: Check It Off Your List

With a track record dating back to 2010 and over $30 billion in AUM, all of our ETFPs provide expert oversight, and a lower, simplified cost structure, as underlying ETF fees are included in the mutual fund. Advisors can also use our stand-alone ETF-based mutual funds, like BMO Covered Call Canadian Banks ETF Fund, for guaranteed end-of-day NAV and commission-free trading, helping to improve the overall efficiency in their book of business, at the same price as an exchange traded fund.

With a reduced overall cost of investing, there is a golden opportunity to have a positive fee conversation with clients, highlighting how this could help them reach their financial goals sooner. Add to this, integrating ETFPs can, in many cases, increase revenue and existing assets, while helping you focus on continuous value-add services. To help frame this important discussion with clients, check out our Value of Advice resource for some practical stats).

To learn more about ETFPs or other innovative solutions to navigate the current market, contact your BMO Global Asset Management Regional Sales Representative.

¹ Risk is defined as the uncertainty of return and the potential for capital loss in your investments.