Sprawling growth across the ETF industry has pushed the product development front to new frontiers; it is now easier and more cost-effective than ever for prospective money managers to enter the arena.
The development of white-label issuers has opened the doors to virtually anyone to launch an ETF, with no affiliation with a big investment house necessary.
A Typical ETF Launch
While many of us enjoy the benefits of using ETFs, few give thought to the behind the scenes process associated with bringing an original idea to market. The hurdles are as follows:
- Regulatory: A firm must have exemptive relief to launch ETFs, which is a highly sought after permission from the SEC that could take as long as two years to be awarded depending on the proposed fund. This relief requirement spans from passive to active to bonds to funds-of-fund products and so on.
- Operational: There are a lot of moving pieces to take care of if you want to launch a fund, including everything from raising capital, to figuring out your listing exchange, and setting up proper market and liquidity provider relations; not to mention portfolio management that comes after launch day.
- Cost: The fees from start to finish associated with an ETF launch typically range from between $750,000 to $1,250,000, or right around $1,000,000.
Enter White-Label Issuers
Creativity has always been an important driver of growth in the industry, but there are limits to bringing fresh ideas to market given all the complexities and hurdles associated with the highly regulated exchange-traded funds industry.
Enter white-label ETF issuers.
- Who are they? Firms that offer turnkey solutions to anyone looking to bring an idea to the ETF market.
- What do they do? White-label issuers provide the necessary infrastructure to bring an idea to market, including help with (but not limited to):
- Regulatory filings and approvals (SEC, FINRA, NFA, etc.),
- Seed capital,
- Market makers, authorized participants, other liquidity and service provider relationships,
- Exchange listing,
- Ongoing fund management.
- What’s the appeal? They aim to offer all of the above for around $100,000, or roughly 1/10th of the traditional cost, in as little as three months.
- What’s the catch? After the launch, white-label issuers share the profits with the fund’s sponsors as AUM grows. This isn’t really a catch, however, given the ongoing fund management they offer.
Meet the ETF Launchers
Here’s a look at some of the most prominent white-label ETF issuers:
The rising popularity of white-label issuers is an undeniably positive factor in terms of democratization, but there are key considerations as with any innovation.
For product users, aka investors, this means more choices, which is a good thing, assuming they are diligent. Also, it arguably opens the doors to unproven strategies, such as funds based around social media sentiment or following guru holdings, which may be a turn off for more conservative investors.
For product developers, aka issuers, this means they must pick an appropriate partner that will best align with their own goals. Remember that one of the most common drawbacks with any turkey solution offering across industries is the fact “one size does not fit all”; in the ETF world, this might mean that one of these launch packages might not be the best alternative to bringing an idea to market for everyone, though it is a very cost-effective route.
The Bottom Line
Whether you buy their ETFs or not, there’s no denying that white-label issuers have carved out a growing space and worthwhile niche for themselves in the ever-expanding ETF ecosystem. Their value proposition is clear: white-label issuers prime the runway for creative ideas by removing many of the cost and regulatory-related hurdles that new entrants would otherwise face.
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