We get the following question at least 1x a day: “How do I start an ETF?“
The good news is we can help you access the ETF market with a low-cost high-quality service offering that spans the complexity spectrum from standard ETF launches to highly complex tax-free conversion transactions.
The bad news is launching an ETF is an inherently challenging task with a lot of moving parts. However, this post is meant to be a resource that will help you become an educated consumer that has the capacity to make an informed decision.
As many readers are aware, we are active in the so-called “ETF white-label” business via ETF Architect. We hope this is helpful and if there are additional questions/thoughts you’d like us to add — contact us — we’ll add them to the list.(1)
You want to start an ETF…are you sure that’s a good idea?
We have a good assortment of materials that address most questions we hear regarding ETF formations:
- An Introduction to ETF White Label Services
- As the title suggests, this is the introduction to the ETF creation process and what you can expect.
- Can you convert your managed accounts, hedge fund, or mutual fund into an ETF?
- A dive into conversions — especially as it relates to doing conversions without triggering a tax event.
- Why Advisors Should Consider Launching Their Own ETFs
- A look at the costs and benefits of RIAs and family offices launching customized ETFs.
- Can a white-label provider steal your ETF?
- A common concern is that your ETF can be “stolen” by an ETF white-label provider. That is not exactly true.
- Mutual Fund to ETF Conversions: To Proxy or Not to Proxy
- Mutual Fund conversions are complex and expensive. This hits the wavetops on the problem.
- Should I launch an Active ETF or an Index ETF?
- A discussion on the pros/cons of the variety of ways one can launch an ETF.
- Can you keep your track record after an ETF conversion?
- A discussion on track records after a tax-free conversion from SMA/HF/MF to ETF.
- #258 episode on why to start an ETF
- Meb Faber, Wes Gray, and Pat Cleary dive into ETF mechanics and inside baseball
- #347 episode on how to start an ETF
- Meb Faber, Wes Gray, and Pat Cleary dive into how to start an ETF
- ETF Architect Homepage
- Main page and information on Alpha Architect’s white-label offering — ETF Architect
- ETF Tax Efficiency.
- How it works? And, why it sometimes doesn’t. Contact us if you want more details.
- ETF Legal and regulatory
- Stacy Fuller et al. went all out on this document. Must read!
- How ETF liquidity works.
- A look into the economics behind ETF spreads and trading liquidity
- We also have a variety of social media accounts and white label providers you should check out.(2)
Finally, if you are ready to get started, fill out the following form.
Frequently Asked Questions regarding ETF start up(3)
How does a white label platform work?
An ETF White Label Platform enables an ETF Sponsor to launch an ETF without incurring the high cost of building and running a Trust. ETF Architect runs all aspects of running an ETF and enables its clients to focus on distribution and running their strategy.
The high-level services provided by ETF white labels can be broken into three core components:
- Portfolio Management
ETF Architect offers #1/#2 because we believe #3 should be flexible and open architecture and bank custody platforms offer #1. There are several other white labels that offer #1, #2, and #3 in one package.
Do I need to trade the ETF and run custom baskets? Who trades my ETF?
We bring a best-in-class trading and execution team as part of our service offering. There is no incremental need to hire trading personnel or outsource trading to a third party. Most importantly, ETF Architect prides itself in high-quality trading operations, thereby ensuring your shareholders are afforded a fiduciary level of care in the execution of its duties.
Does your firm help me with distribution? I have a great idea but need help selling.
Distribution IS the ETF business. More importantly, distribution requires a highly customized, bespoke approach (at least for boutique operators). What may be the viable path for one fund is NOT a viable path for another. We prefer to provide bespoke 1:1 consulting on distribution, as required, and we will leverage our network on your behalf. Distribution expenses can get costly, and fast. As such, we will not provide canned distribution services or packages upfront, but rather, will work with you to assess where your strengths and weaknesses are, what stage of ETF growth you anticipate being in, and how a comprehensive distribution strategy can leverage those points.
Am I an Adviser on the Trust? A Sub-Adviser?
Both options are available, but being a sub-advisor entails lower costs and complications.
Do I need to be regulated?
In general, yes. One can operate an index ETF and avoid registration under the publisher’s exemption, however, we strongly recommend that all ETF sponsors register with the SEC, regardless of whether or not they seek to operate an index-based fund or an active fund.
How is billing handled? Do I enter into a lot of service agreements?
ETF Architect provides a single, clean invoice on one page. We include all accounting, billing, and invoice payments as part of our low, fixed fee. You enter into a single contract with ETF Architect and we deal with invoice management and billing on your behalf.
Do I get to choose my listing exchange?
Yes. ETF Architect works with all three listing exchanges (NYSE, NASDAQ, CBOE)
What other costs are there that I should know about?
All fund sponsors will need EO/DO insurance and have to cover certain variable costs. We seek to keep these costs as low as possible and bill them pass through (i.e., no markup).
What types of funds can your platform handle?
Our platform can support any fund type with the appropriate partner. Each strategy type is evaluated on a standalone basis (e.g., equities, fixed income, futures, etc.).
What are your screening criteria?
We do not seek to be the largest platform or the platform with the most funds. We grow slowly and selectively, opting to partner with high-integrity firms with a demonstrable chance of success. At a minimum, we expect partners to possess $500k in operating capital, $5M of launch capital for the ETF on Day 1, and a reasonable roadmap to $50M in fund AUM.
What is your pricing?
Pricing is developed on a case-by-case basis. For a generic ETF offering, one can expect startup costs to range from $50k to $75k and ongoing all-in costs to range from $200k to $250k+ per year. Plus, there are additional marginal costs that range from 5bps to 15bps depending on the scale of the fund.
What do I need to do in order to launch an ETF?
We launch a new ETF via three key workstreams: SEC approval, Board approval, and internal compliance program development. Launch times can vary widely based on the Sponsor’s registration status, ability to iterate on board materials, and desired launch date. A launch can occur as quickly as 90 days.
How much does it cost to launch an ETF?
Launch costs are incurred and passed on without markup to you. We rely on select vendors curated over many years to ensure the lowest costs possible. See above for ballpark price estimates.
Who can start an ETF?
Sponsors must be willing to register with the SEC as a Sub-Adviser, or if an index provider, establish a robust compliance program subject to Board approval. While anyone can start an ETF, we screen candidates for a commitment to compliance and a robust, viable business plan.
Is it hard to run an ETF?
For normal people, yes. For combat Marines, no.
All joking aside, running an ETF is a complex operation that involves a lot of moving pieces. We have been working on our ETF platform for nearly 10 years and we still have room for improvement!
Can you convert mutual funds into ETFs?
Yes. Mutual fund conversions are becoming increasingly common. Additional costs are required to ensure a smooth conversion; however, the process itself is common.
Can you convert hedge funds into ETFs?
Yes. We can (and have) converted hedge funds into ETFs. The analysis will be conducted to confirm eligibility and a work plan for conversion. Additional costs apply.
Can you convert SMAs into ETFs?
This is possible; however, it is the most difficult of the three conversions to undertake. The analysis will be conducted to evaluate conversion potential. Additional costs apply.
Ready to Launch an ETF?
Fill out the following form and we’ll have a conversation.
|↑1||An important note: our ETF white-label offering is designed to deliver affordable, 100% turnkey, and highly transparent access to the ETF marketplace. As we often say, “Send us the spreadsheet with your names/weights; sell your idea to the public; we’ll do the rest.” Other white-label firms offer different things and we suggest you review them to ensure the right fit.|
|↑2||Here are a group of Twitter accounts you can follow to stay up to speed with insider ETF developments:
And we have a laundry list of ETF white label providers
Note: Investopedia has a good overview article on how to start an ETF here.
|↑3||Note, an updated list of FAQs is maintained at our ETF Architect site|