This piece outlines the high-level benefits of the ETF structure, which boils down to market access, tax efficiency, and transparency. It covers the considerations for a 351 tax-free conversion and the mechanics and tax consequences of a 351 conversion.
In this episode host Belle Osvath, CFP® talks with Dr. Wesley Gray the founder of ETF Architect and Alpha Architect, about how advisors can create their own ETFs which can be used to help manage client funds and taxes. They discuss the creation process, the cost, and what type of advisory practice would benefit the most from their own ETF.
ETF conversions are accelerating and we are seeing more and more mutual funds converting into ETFs. The reasons for mutual fund to ETF conversions are obvious: tax efficiency, transparency, and lower operating costs. But how does this work? What are the pro/cons? This post provides a glimpse behind the curtain and a practical guide for any asset manager considering a mutual fund conversion. Below we outline the laws behind a mutual fund conversion, options for mutual fund conversions, and the nitty-gritty behind how to optimize a mutual fund conversion.
Independent RIA firms seek to do what is "right" for the client, which often boils down to minimizing fees and taxes and increasing transparency/education (i.e., ETFs). But the "right" solution for an advisor's clients might not be available 'off-the-shelf' in the ETF market, or the advisor can't use ETFs because they are stuck "managing around" legacy portfolios and tax problems.
What's the solution? Allow advisors to create their own ETFs, which can be customized to deliver the specific investment program the advisor desires and allows an advisor to offer unique solutions for legacy tax issues tied to low-basis securities.
Here is the bottom line: converting into the ETF structure can bring a lot of benefits to the table, but porting your official track record over to an ETF can be challenging.
However, even if the facts and circumstances of your situation suggest that porting your official track record into an ETF is impossible, all is not lost. Retail consumers, institutional investors, platform providers, gate-keepers, and so forth, will likely be aware of your previous performance and reputation as an asset manager/advisor and they can often read between the lines. For example, if an advisor has been running the "ACME US Dividend Strategy" for 20 years, and this same advisor launches the "ACME US Dividend ETF" with the same investment process and investment objective, it doesn't take a rocket surgeon (or a brain scientist) to figure out that the ETF is probably a more tax-efficient version of the old strategy.
can be boiled down to the following: Index ETFs come with increased transparency and marketability; Active ETFs come with lower operational costs and increased portfolio management flexibility.
summary, there are no right answers when it comes to launching an active or an index ETF. However, by understanding the basics of the regulatory landscape and the costs/benefits of each approach, both consumers and ETF operators can make more informed decisions. Thanks for reading!
We get the following question at least 1x a day: "How do I start an ETF? Because we have so many requests for information on the topic of "How to Start an ETF?", Wes asked that I compile a list of materials on the topic and a "FAQ" to address all of your burning questions.
As readers know, our firm's mission is to empower investors through education. We live that mission every day. In this piece, we walk through the [...]
The question we keep getting, in various forms, is the following:
Long story short, yes, yes, and yes...but it's complicated!
Interested in starting an ETF? Interested in converting a managed account, hedge fund, or mutual fund into an ETF? Simply want to learn more about [...]
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