Brett Eichenberger

Brett Eichenberger is an audit partner at Cohen & Co., a top 50 accounting firm in the United States that has built deep specialization in the investment management industry. The firm audits a substantial number of ETFs, including products from some of the largest issuers in the market. Brett has spent his career focused on alternative investments and registered products, and he brings a unique perspective on the operational backbone that makes ETFs actually work. On this episode of Behind the Ticker, Brett joins Brad to talk about what goes on behind the scenes in the ETF industry, from fund auditing to the operational details that most investors never think about.

The Plumbing Behind Every ETF

Brett explains that Cohen & Co. sits at the intersection of audit and advisory for investment products. The firm audits hundreds of funds, which gives them a bird's-eye view of industry trends and operational challenges across the entire ETF ecosystem. He describes the audit of an ETF as fundamentally different from auditing a traditional company. The key areas of focus include NAV calculation accuracy, compliance with investment restrictions, proper valuation of holdings (especially for active ETFs with less liquid positions), and making sure the creation/redemption process is functioning correctly.

For ETF issuers, particularly newer and smaller ones, Brett emphasizes that choosing the right service providers from the start is critical. Fund accountants, administrators, custodians, and auditors all need to work together seamlessly. A breakdown in any one of these relationships can create problems that ripple through the entire operation. He's seen cases where fund accounting errors caused NAV discrepancies that took significant time and resources to unwind. Getting the infrastructure right from day one isn't glamorous, but it's what separates firms that scale successfully from those that struggle with operational issues that compound over time.

Active ETFs and the Valuation Challenge

The explosion of active ETFs has created new complexity in the audit world. Passive index funds have straightforward valuation processes because they hold securities priced on public exchanges. Active ETFs, particularly those holding less liquid instruments like small-cap stocks, fixed income securities, bank loans, or derivatives, require significantly more judgment in valuation. Brett notes that the auditor's job is to make sure those valuations are reasonable and that the fund's pricing policies are being followed consistently across all market conditions.

He describes a hierarchy of valuation complexity: Level 1 assets are priced from active markets (public equities), Level 2 assets use observable inputs but aren't directly quoted (many bonds and derivatives), and Level 3 assets require significant judgment (illiquid structured products or thinly traded securities). As ETFs push into more exotic strategies, the proportion of Level 2 and Level 3 assets increases, which means more audit work and more risk of pricing errors that could affect all shareholders. Cohen & Co. helps ETF issuers think through their valuation policies before launch, not just after problems arise. The goal is to build a framework that works across normal and stressed market conditions.

Industry Growth from the Auditor's Seat

From Cohen & Co.'s vantage point, the ETF industry's growth has been remarkable and is accelerating. Brett points out that the firm has seen a steady increase in new ETF launches year over year, with active products making up a growing share of total launches. He highlights several trends reshaping the audit space. The mutual fund to ETF conversion wave has brought established strategies into the ETF wrapper, creating audit work that involves transitioning entire fund complexes with their associated track records and tax histories. Defined outcome and structured products have added complexity that requires specialized audit expertise in options and derivatives valuation. And the entry of crypto-related products, including spot Bitcoin ETFs, has forced the audit profession to develop entirely new frameworks for digital asset custody verification and valuation.

Brad and Brett discussed the importance of choosing service providers that specialize in investment products rather than going with a generalist firm. Brett makes the case that a firm auditing ETFs needs deep familiarity with 40-Act regulation, custody requirements, and the unique mechanics of creation and redemption. A generalist auditor might technically be qualified but would miss the nuances that can create regulatory or operational risk down the road. Cohen & Co.'s concentration in the investment management space means their auditors see patterns across hundreds of funds, which helps them identify emerging issues early and share best practices across their client base.

Key Takeaways

• Cohen & Co. is a top 50 U.S. accounting firm that audits hundreds of ETFs and investment funds, with deep specialization in registered investment products and alternatives.
• Active ETFs holding less liquid instruments create valuation complexity across Level 1, 2, and 3 asset classifications that requires significantly more audit judgment than passive index funds.
• Getting the right service providers (fund accountant, administrator, custodian, auditor) aligned from day one is critical. Infrastructure breakdowns cascade through the entire operation.
• The mutual fund to ETF conversion wave, defined outcome products, and crypto ETFs are all creating new audit requirements that demand specialized expertise.
• An auditor with deep 40-Act and ETF-specific experience will catch nuances in creation/redemption mechanics, custody, and regulatory compliance that generalist firms miss.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.