Broadridge Releases ETF Share Class White Paper

In a recent white paper, Broadridge dives into the regulatory, governance, and commercial challenges of multi-class share structures. Specifically, the paper examines fee considerations, capital gains, and market growth opportunities with supporting data from current industry trends. According to the Broadridge white paper, “roughly 77% of ETFs employ a “unitary fee” model covering nearly all portfolio operating costs, compared to only 12% of actively managed mutual funds.” The paper notes that fees and distribution costs are two specific areas where boards will need to pay particular attention in their oversight function. Another area boards will need to be mindful of is the fund(s)’ capital gains, particularly in the conversion year. According to Broadridge, “it is likely that investors will experience a one‑time capital gains impact in the year the ETF share class launches.” It will be crucial for boards and management to determine whether this event would still meet the threshold for being in the best interest of each class for shareholders. Also of note, the Broadridge paper does an extensive dive into growth possibilities comparing current “clones,” “siblings,” and “cousins.” The findings suggest that “Simply introducing a related ETF – whether stand‑alone or as a share class – does not guarantee broader distribution or attainment of economies of scale.”

Click here to read the Broadridge white paper “Wrapper to revolution: ETF share classes as a structural shift.”