While fund managers are filing for exemptive relief to offer dual share classes, platforms remain hesitant and service providers are still working through operational kinks, an Ignites Research survey finds. “Distributors and service providers say they are not ready to support them, according to the survey. Distributors cite a lack of clear incentives and guidance from managers, while service providers point to complex conversion processes.”
The survey also stated, “even if the SEC approves ETF share classes, fund groups cannot sell the products if shelf space isn’t available. In fact, 60% of asset manager workers surveyed by Ignites Research listed lack of platform support as their top challenge to bringing ETF shares to market.”
Distributors cited several hurdles, with thirty percent pointing to operational complexity as their biggest constraint, while 20% each identified technology integration, unclear advisor demand, and lack of clarity from fund firms.
Some distributors raised compliance issues tied to overlapping product wrappers. According to FINRA, advisors with only a Series 6 license can sell mutual funds, but not ETFs. Concern over regulatory issues and operational complexity is a cause for hesitancy.
The biggest concern for service providers was how they would convert assets in one vehicle type to the other, with other issues, including tax and accounting treatment, distribution tracking and meeting compliance requirements.
Also mentioned in the recent report, one administrator stated, “There’s no clean way to process these transactions without manual work,” while another warned that without automation, the “timeline to process and risk of error” would increase. Some cautioned that managers may underestimate the burden.
Although the survey paints a somewhat negative picture identifying impediments to ETF conversions, interest has not waned. The SEC is reviewing the exemptive applications and issuers are hoping to move forward while client demand remains high.
There are issues to overcome and procedural complexities to address, but the momentum remains strong, and industry excitement continues.
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Resource
- Ignites Research. (2025, September 16). Re: Gatekeepers, Not SEC, May be Roadblock for ETF Share Classes
