David Stephenson

When David Stephenson stepped into his role as director of ETF strategy at Toronto-based CIBC Asset Management Inc. (CIBCAM) last year, access to the parent bank’s distribution channels was the No. 1 attraction of his new position.

“I’ve been in the industry since 1995, and we’re experiencing the most change that I’ve seen in all the years I’ve been in the industry, such as fees coming down, margin compression, technology, robo-advisor platforms and regulatory changes,” Stephenson says. “But the one constant that I’ve learned at the end of the day is that distribution is key.”

Stephenson joined CIBCAM in July 2018. Previously, he was with Toronto-based Vanguard Investments Canada Inc., for which he worked for two years on product development and strategy. Whereas independent companies sell their products through financial advisors, Canadian Imperial Bank of Commerce (CIBC) has the advantage of having established client relationships through its built-in distribution channels: bank branches across Canada, CIBC Wood Gundy, its full-service brokerage, and Investor’s Edge, CIBC’s online discount brokerage.

Stephenson says he plans to leverage those distribution channels to design the right products to support CIBC’s client base.

Stephenson is the first to take this role for the parent bank, as CIBCAM entered the ETF market in January 2019. CIBC was the last of the Big Five banks to do so, and was followed by Montreal-based National Bank Investments Inc. in February. CIBC states it chose to enter the space this year rather than earlier because the bank wanted to find ways to differentiate itself from other ETF providers. CIBCAM previously was involved in the ETF space as a subadvisor.

The firm’s foray into the market includes the launch of two smart-beta equity ETFs and two actively managed fixed-income ETFs. The ETFs have a combined $130.7 million in assets under management (AUM) and have experienced consistent inflows.

“All of the pieces of the puzzle are here at CIBC to grow the ETF platform,” Stephenson says. “It’s just a matter of putting those pieces together and prioritizing what kind of strategies we want to bring into the market to meet our investors’ needs.”

Product strategy has been Stephenson’s passion throughout most of his 24-year career in the financial services industry. He was born and raised in Toronto and holds a bachelor of commerce degree from Ryerson University. Soon after graduating, he got a job at Toronto-based Scudder Maxxum Co. (later acquired by Winnipeg-based Investors Group Inc.) selling mutual funds directly to clients.

Not long afterward, Stephenson turned to product development and management, holding staff or consulting roles with several firms, including Toronto-based AGF Management Ltd., Vancouver-based HSBC Global Asset Management (Canada) Ltd. and New York-based BlackRock Inc. and JP Morgan Asset Management Inc.

Stephenson has found that launching a product requires collaboration across the organization. As a product developer, he says, you aim to match internal investment-management capabilities with trends in the market, but the sales and marketing departments also must buy into what you’re trying to accomplish.

“You can do all the research, and that’s great,” he says, “but you have to look at [the strategy] holistically throughout the organization, communicate what you’re trying to achieve and have everyone on the same page to get the message out. You have to have a philosophy, and it usually comes down to the company you’re working with.”

Being a part of an organization that works together to launch a product successfully, and then watching that product’s AUM grow, can be immensely satisfying, Stephenson says. “It means there’s investor acceptance for what you launched into the market,” he says. “That’s your test, as a product developer, to see if [the offering] met their needs and is commercially viable.”

Stephenson says his transition to CIBCAM has been relatively seamless, thanks to his experience in launching ETFs at BlackRock and Vanguard, and he is motivated by the prospect of developing a completely new platform for CIBCAM.

“This is an opportunity to help shape not only the product but the strategy,” Stephenson says. “I plan to leverage the resources that I have here in terms of investment-management capabilities and marry those with trends we’re seeing in the ETF industry to bring the right products and exposure to meet our clients’ needs.”

Notably, the firm decided to start with active fixed-income and smart-beta equity funds rather than passive ETFs, the last of which dominate the space.

“We chose to focus on these two particular areas because they leverage our internal capabilities,” he says. “For instance, we have a great track record of managing corporate bonds, so the natural evolution is that we would offer that within an ETF wrapper.”

Stephenson says CIBCAM consulted clients and advisors and found that their top concerns are low yields and rising interest rates, both of which the two fixed- income products are designed to address. The smart-beta products, on the other hand, are intended to give clients diversified exposure to Canadian and U.S. markets by using proprietary indices.

“The factors we look at within those [smart-beta] portfolios,” Stephenson says, “are value, momentum, low volatility and quality, [all of] which have a lot of academic research behind them.”

Stephenson adds that the fees on the CIBC funds are among the lowest in Canada: 25 basis points (bps) for the smart-beta equity funds and 35 bps for the active fixed-income funds.

Thirty-six investment fund companies in Canada offer ETFs as of March 2019. Expansion of the industry has more than doubled over the past three years, according to the Investment Funds Institute of Canada’s 2018 Investment Funds Report. As well, Stephenson says, the ETF industry is becoming more visible in the market and is revolutionizing investing through the introduction of specialty products and cost structures – due, in part, to the shift toward fee-based compensation for advisors and away from embedded commissions. The rise of technology and robo-advisors, he adds, will contribute to expansion of the industry.

Already, this expansion has led to convergence of Canada’s mutual fund and ETF industries, Stephenson says, with both types of products remaining important elements of an investor’s portfolio.

Mutual funds are a great option for investors looking to use dollar-cost averaging or use a systematic withdrawal plan, Stephenson says.

An ETF strategy, on the other hand, boils down to its low cost and the ability to create a portfolio based on investment themes that are compelling to advisors, he says.

“There are so many uses you can have for ETFs in your portfolio,” Stephenson says. “If you want to put them in as a long-term strategic holding or [take] a more tactical perspective, and an advisor wants to express a view on a specific theme or sector, [ETFs are] pretty flexible from that perspective.”

Although ETFs are growing in popularity, lack of education regarding the funds is one remaining challenge that can hinder adoption of the products.

“It’s incumbent on all of us in the industry to continue to educate investors on ETFs, ETF structure, trading and bid/ask spreads,” Stephenson says, adding that better education can be achieved through communication tools, such as white papers, to explain key concepts to both advisors and clients. Other tools include webinars, offered through Investor’s Edge or Wood Gundy’s advisors.

From a broader perspective, Stephenson says, industry associations can play a significant role in education as well.