By: Alexandra Levis, CEO at Arro Financial Communications
New ETF issuers are entering a changed investing landscape. Once the underdog, ETFs have been slowly but surely growing in sheer number, assets under management, as well as into new asset classes. According to The Investment Company Institute, as of December 2014 there were 1,411 ETFs domiciled in the United States, boasting nearly $2 trillion in assets, and encompassing strategies ranging from core broad market index funds to commodities, bonds, emerging markets, and even active management.
For these reasons, at first blush the competitive ETF arena may appear somewhat daunting to new issuers looking to launch their first funds, which is why ETF Trends’ series of panels at its 2015 ETF Bootcamp event was so welcome. The illuminating set of discussions, addressing everything from sourcing liquidity to transaction-free platforms, to regulatory issues and the shapes of ETFs to come, took place over the course of two days in New York City.
At Arro Financial Communications, we’ve done our best to glean the best nuggets of ETF wisdom from the surfeit of expertise that was on display at 2015’s ETF Bootcamp. And so without further ado, here are The Top 5 Most Important Things to Know If You’re Launching an ETF:
5) “No Transaction Fee” (NTF) ETFs make a real difference, both for RIAs and investors
As many panelists on the “Rise of the NTF Platform” noted, RIAs like to be able to demonstrate to their clients that they’re saving them money, and investors like to know that they are not paying an extra cost simply to enter into an ETF investment. Brokerages can differentiate themselves by offering a suite of NTF ETFs to their clients, in the process generating substantially greater ETF sales. If an issuer can find a place for their ETF in a brokerage’s NTF lineup, it can make a big difference, both to the issuer and the brokerage.
4) There is no set timeline when it comes to SEC applications for exemptive relief
The ’40 Act allows for open end funds (Mutual Funds) and closed ended funds. ETFs inhabit something of a middle ground between these two categories, and as a result owe their existence to approved exemptive applications filed with the SEC. While the approval timeline has improved significantly over the last few years, and can be as short as 6 months for more conventional index ETFs, the process can often take much longer, and in rare cases, more-novel structures can be flat-out rejected by the SEC.
Even if a new application for exemptive relief is for a relatively simple structure, unforeseen events such as a blip on Wall Street or a single-day liquidity crisis elsewhere can put applications on hold for months, or indefinitely. Something as innocuous as a bad story in the press might prompt SEC action or hesitancy, delaying the approval and issuance of new ETFs.
3) An ETF does not sell itself