Garrett Stevens, ETC
How White-Label ETF Platforms Work
Garrett Stevens runs Exchange Traded Concepts (ETC), one of the major white-label ETF platforms with nearly $6 billion in assets under management and close to 60 funds. For anyone considering launching an ETF, this conversation is essentially a masterclass in what the process actually looks like , from cost and timing to post-launch services that most new issuers don't think about until they need them.
$90,000 and 75 Days: The Real Numbers
Garrett cuts through the ambiguity around launch costs and timing with specific numbers. "The $90,000 to get to market is typical , that's what it costs on our platform to get a fund to market." That's all-inclusive: custom website, legal filings, the prospectus, startup fees with service providers, CUSIP registration , "everything that's required."
The regulatory timeline is 75 days from filing with the SEC. "The SEC has 75 days to declare that fund effective. You're going to get comments from them at day 45 , they're going to ask why you're saying this, how you back up that, ask you to rearrange risk disclosures, make them alphabetical or rank them by importance." Some comments you accept, some you push back on.
The practical timeline is closer to 120 days from commitment to listing , "a couple of weeks to draft a prospectus, 75 days with the SEC, and then the launch preparation period." That final period is critical because during the 75-day SEC review, the fund is in a quiet period. "It is an unregistered security. If you talk about it during that time period, the SEC considers it gun-jumping and they can actually delay your launch by six months."
The Smart Launch Strategy
ETC advises clients to let the fund go effective at day 75 but delay the actual listing by a couple of weeks or a month. "Get the website live, start talking about it, let them talk to their clients, existing relationships, and build some momentum for the product." If the issuer has existing SMA assets to seed the fund, ETC provides guidance on how to transition them , "work it in, don't pop it all in day one. We talk through strategies for how best to do that and make it advantageous for their clients."
Active vs. Passive: The Blurry Line
One of the most valuable parts of the conversation is Garrett's explanation of the active vs. passive distinction. "Active or passive has nothing to do with the frequency of changes in a portfolio. It really has to do with how you arrive at your security selection." He shares a striking example: "We have an index-based product right now that turned over 80% in a week. It's still considered a passive product , the fund just tracks an index."
ETC spends significant time in pre-launch consultation helping issuers determine whether their strategy works better as an active fund or an index. "Right now you're running this and considering it active, but can we help you make this an index, follow some rules? Then you have an index you can talk about and market , it gives you different marketing opportunities."
Post-Launch: The Starting Line, Not the Finish Line
"The fund launch is the starting line, not the finish line," Garrett emphasizes. ETC's post-launch services include a full marketing suite: email campaigns, webinar hosting, website management, PR support, digital campaigns, and even running social media (Twitter and LinkedIn) for several clients. They also work on wirehouse approvals , "we teach them about the wirehouses and have funds at all the major wirehouses, LPLs, Raymond James."
With nearly six billion in assets and close to 60 funds, ETC has the scale to push for inclusion on recommended and approved lists across the distribution space. That institutional relationship network is something individual issuers would take years to build on their own.
What Brad Wished He Had
Brad's commentary throughout reveals the value of this kind of platform: "We did everything ourselves. It took us longer, cost us much more money, and we're learning along the way. It would have been very helpful to have a voice like yours." For new issuers weighing the build-vs-buy decision, Garrett's pitch is compelling: focus on what you know (your investment strategy) and let the platform handle the operational, legal, regulatory, marketing, and distribution infrastructure that has nothing to do with your investment edge. The $90,000 startup cost is a fraction of what most issuers spend going it alone.
One of Garrett's most impactful observations is about the quiet period: between SEC filing and effectiveness, the fund is an unregistered security. Talking about it publicly during those 75 days constitutes "gun-jumping" and can delay the launch by six months. Many first-time issuers don't understand this constraint and inadvertently promote their upcoming fund on social media or in client communications. ETC's pre-launch coaching helps clients manage this minefield , building excitement and lining up day-one capital without crossing regulatory lines. It's the kind of practical knowledge that separates experienced platforms from do-it-yourself launches.
Key Takeaways
- Garrett Stevens runs Exchange Traded Concepts (ETC), one of the major white-label ETF platforms with nearly $6 billion in assets under management and close to 60 funds.
- For anyone considering launching an ETF, this conversation is essentially a masterclass in what the process actually looks like , from cost and timing to post-launch services that most new issuers don't think about until they need them.
- "The SEC has 75 days to declare that fund effective.
- You're going to get comments from them at day 45 , they're going to ask why you're saying this, how you back up that, ask you to rearrange risk disclosures, make them alphabetical or rank them by importance." Some comments you accept, some you push back on.
Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.
Full Transcript
7,182 wordsMachine transcribed from Brad Roth's conversation with Garrett Stevens, ETC, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
Welcome to Behind the Ticker. I'm Brad Roth, Chief Investment Officer of Thor Financial Technologies and Portfolio Manager of THLV, the Thor Low Volatility ETF. Behind the Ticker uncovers the inner workings of the ETF industry. We will interview portfolio managers and ETF service providers to dive deep into their work lives and their businesses. We will learn the inner workings of their strategies and what drives them as they continue to grow their company. Many of these individuals are entrepreneurs and will have unique and compelling insights to share as much goes on behind the ticker. Please note, nothing in this show is investment advice and it is meant solely for educational and entertainment purposes only.
Welcome to episode four of Behind the Ticker. Today we have Garrett Stevens. He's the founder of Exchange Traded Concepts. If you are in the industry and are thinking about launching an ETF or you are already in the ETF business and want to get some tidbits from Garrett, this is a wonderful episode. Garrett does a great job walking us through some of the best practices when it comes to starting and actually running an ETF. We talk about some of the things an ETF provider and issuer should be doing along the way in order to maximize their success. So I highly recommend you listen to this entire episode with Garrett Stevens, the founder of Exchange Traded Concepts. Garrett, welcome to Behind the Ticker. Morning, glad to be here. So you run Exchange Traded Concepts. We've mostly had on other ETF
Managers up to this point. So this will be a very interesting conversation. I think it'll be for portfolio managers out there that are maybe thinking about getting in the space. And I think there can be some value for existing managers to learn from some of your expertise. But before we get into it, tell me about your professional background and how you decided to launch Exchange Traded Concepts.
You bet. So, I started out right out of school really as a retail investment advisor. I worked with an independent firm here in Oklahoma City where I'm born and raised. Really through that experience, I was exposed to working with various types of products, working with various types of clients, got exposed to a specific subset of kind of institutional investors that we worked with. My partner at that firm at the time, we launched our own family of ETFs. We filed for that family back in 2008. Back in those days, you had to get exemptive relief from the SEC. And it took us about a year just to get permission to launch the funds from the SEC. And it took nearly a million
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Dollars just in legal fees alone to get those products to market. I think back then we were 32 or 33 in line, actually had permission to launch. So it was painful. Like any good, new business, it took twice as long and cost twice as much as it was supposed to, to get the thing off the ground. So, once we finally got it launched, frankly, we had spent more capital to do it. And then we really thought it was going to. We had those products out for about 18 months or so, really just not very successful in gathering assets because we had spent a lot of our, what had planned to be marketing dollars on getting the thing up and going. So at that time, we started
Getting some inbound calls from other people looking to get into the market, basically just say, look, we'd like to buy you just for your infrastructure, just for your exemptive relief. We don't want to wait the year with the SEC. That's really where I got the idea for ETC to become a white label ETF issuer to say, man, if we had had this opportunity to get to market faster and let use somebody else's infrastructure, we could have saved a ton of money and a ton of time. Because once you have the infrastructure in place, you can launch funds in 75 days with the SEC. You don't have to wait the year. You don't have to spend a million dollars. So that's where the idea came from. And so now we can get people to market. And, our record
Is from the first conversation we had with somebody. We had their fund trading 100 days later, which is
Lightning fast. That's lightning fast.
Yeah. And the cost is about 90 grand, or less, kind of depending on the product. So, cost us a million bucks. Now it costs somebody 90 grand and, it took a year is now 100 days to get to market. So, um, really, really a big improvement and, um, big time saver for folks.
Right. Well, we're going to jump, uh, we're going to jump into, exchange traded concepts and a little bit deeper, but before we do, I want to learn a little bit about you. I read your bio. Um, you, you were a pilot now I've always wanted to be a pilot, but, and what I'm going to teach my son is that if you want to do dangerous things, you should probably do them before you get married because I'm not allowed to go get my pilot's license at this point. Um, but are you still flying?
Yeah. Oh yeah. So I, um, I actually started flying when I was 13. Um, I started flying gliders. So, um, sail planes, uh, with no engine, which my parents loved, uh, you get pulled up into the air, uh, by another plane. So I started doing that when I was 13. So it on my 14th birthday, which is the day you're legally old enough to fly solo, did that until I was old enough to start training in single engine planes, which I was age 15. So it on my 16th birthday, um, which was again, um, the day you're legally old enough to fly solo, um, have been flying ever since. Um, so yeah, I've, uh, I fly, um, somewhat regularly, uh, these days, um, a little bit for business here and there,
But, um, yeah, been, uh, been flying all kinds of aircraft, um, ever, ever since.
That's, that's really, really fun. Um, have you, have you gotten into jets at all, or are you mostly flying prop planes?
Um, mostly prop plane, single and twin engine. I have had the opportunity to fly, fly jets before, um, some business jets that, uh, family or friends own. I, uh, I do not own my own jet, unfortunately, not yet. Um, it may, maybe someday. Um, but, um, I've flown everything, uh, spent some time doing aerobatics. Um, I've had some friends who, who fly competition aerobatics or own aerobatics planes. So, so I had the opportunity to go out and do, uh, do some of that fun stuff before, um, some friends on everything from different warbirds, um, military X, World War II military type aircraft to, uh, um, singles, twins, seaplanes, all kinds of fun
Stuff. Yeah, that's great. And I also read you have horses as well. So, uh, yeah, man of many
Talents. Yeah. I grew up riding horses and showing horses. My wife and I ride and show quarter horses. We compete in a reigning discipline. Uh, so if anybody watches Yellowstone, uh, that, that's what they do on, on Yellowstone is the reigning. So actually a lot of the people on there are real, reigning competitors. And so we know a lot of the folks on the show. So we actually compete with them, uh, here in Oklahoma city. We're fortunate. That's where all the world championships for reigning are actually held here in Oklahoma city. So, uh, we, we do that and show all over the country. So, uh, pretty fortunate to be able to do that as well. So our, our weekends are
Spent, uh, with horses and airplanes. Yeah. My, uh, my in-laws have horses and, uh, they're a lot of work. Um, they're beautiful and they're fun, but they, they sure are a lot of work. So I'm sure that you have some early mornings and late nights. I do. In fact, yeah, no, I, I spend my mornings in the
Barn before I head to the office and, uh, again in the evening. So it's, uh, it's all right. It's a
Good, good way to start the day and a good way to wind down. That's right. So let's jump into exchange trading concept. You've, you've answered a handful of questions, uh, that I had and already about it. And, I think let's jump into, if I wanted to start a fund today, what should I know ahead of time about the business, about the ETF business that really isn't apparent
To somebody? there's lots of things, right? So one, one of the, um, the things to think about is, from the, everything from the product design standpoint through how you plan to market it and raise assets in it, the ETF business is not, um, if you build it, they will come, um, much to the chagrin of many people. Um, they think they, they, they have this product and frankly, a lot of people think they're not going to need to market it. It's, it's the best thing ever, right? Is, is, is what they think. And we're going to beat the S&P by 200 basis points. And why would everybody not automatically buy this fund? And while it makes sense empirically,
Um, it's just not the way it works out there. Um, um, so you really have to have a solid plan, um, to, to let people know about the product. You have to have the capital to wait. Um, there are, we have had funds in the past, that, um, one of the best stories we have is one of the funds we launched, we brought it to market. It did well gathering, gathering some assets in the first, six months or so it probably picked up 80, $90 million, got to maybe a hundred million dollars, shortly after, but it sat there for about four years. And in the fourth year it picked up $2 billion, right? But you got to wait and you got
To be prepared to pay the bills and spend the marketing dollars, and be ready when your time comes, when that theme comes into vogue, when that strategy finally pays off, when the market sentiment really hits and advisors suddenly realize they need whatever it is you have, just because you've launched it doesn't mean everyone knows they need it right now. And so you got to be prepared to wait for that. And that's what a lot of people underestimate.
Yeah. That's something that, um, I've talked to many different managers about, um, because distribution is very hard and maybe we'll, we'll talk about distribution right now is that, um, unless your, your product is extremely niche and there's so many products out there now that it's very hard to find, be a first mover somewhere, right? Um, you gotta, you gotta do distribution, right? So what do, what do managers get wrong about distribution, right? What, what do they need to be doing regularly in order to, um, have success in scaling
Their product other than patients? Well, I think that a lot of people focus on it maybe too much as a sales campaign when really it's an awareness campaign, right? Is one of the things that we try and focus on is there's a tendency to try and get out there and, try and get people to buy the fund right now, which is expensive. It's a different expense to try and send wholesalers out or try and get a Salesforce out there to try and get people to buy tickets and drop tickets in the fund when that's a much harder thing to do than to just slowly and in a less expensive manner, build awareness about the fund so that it's top of mind for advisors or retail at some point in the
Future, right? You can do that in a much less expensive manner and have a higher success rate. I think over time doing that, um, it, it takes more patience. Um, but I think you're going to have a longer term success rate with that than if you spend a whole lot of money, um, trying to get people to buy it. it, it's a difference as well between active and passive. And this is something we talk about with new clients as well with passive, thematic funds. It's a little easier for an advisor to go talk to their client and say, here's this, new thematic product we'll use, robotics or something as an example or AI, right? We see AI all over the news
Right now. It's in everything you see and everything you talk about. That's easy for an advisor to go talk to their client about, right? This is a hot sector. These stocks are running away. I don't know which one's best. So we should buy an index fund that has all of them, right? That's, that's the best way to get involved in this right now with an active fund. It's a lot harder for them to talk to their client and say, this hot manager, we're going to miss this. It's a lot easier for them to say, this guy might be really good. Let's keep an eye on it. Right. And watch that performance. So from a sales perspective, you don't want to spend, a ton of money trying to sell that fund
When the advisor is going to say, let's just watch it. So let's have a drip campaign to just keep it in front of them, keep it top of mind and let it build a track record. And then, hopefully your, your track record and your thesis pans out, and then you're going to have a little, you're going to have saved some of your powder to, to ask for the sale later when you actually have something to sell, you have a track record. That's, that's going to be a little bit more sellable.
Yeah. I think, um, I've been doing this for 10 years, new in the ETF business, but, um, I think I've learned early, really early on, uh, and made the mistake of, um, paying for third-party distribution, which I think that there is some value in it, but it is very expensive and you have really high expectations going in, but it, it can drain a marketing budget pretty fast. Um, so that's, that's very good advice. Um, let's talk about new issuers. Um, what I already asked, you kind of already answered this, but what do you think somebody should expect when they're going through a launch process, such as timing and cost? You said you've, you could do it for 90 grand in 120 days. That's a record. But, um, if what should the expectation be going in when we're looking to
Launch a fund? Well, from, from timing and cost it, the, what I would say is typical that the 90 grand to get to market is typical, right? That that's what it costs to our platform to get a fund to market. Um, that's, that is, um, and that's all inclusive through our platform as well. So that's everything that's a custom website for your fund and everything that's required on, on the legal front. That's the prospectus that startup fees with various service providers, everything from registering your QSIP, um, everything will, that will get you to market. Um, the more typical timeframe. So let's talk about what the regulatory timeframe is. It is 75 days with the SEC. From the time you file the prospectus, the SEC has 75 days, um, to declare that fund effective.
Um, you're going to get comments from them at day 45. Um, and they're going to come back and say, why are you saying this? How do you back up this, bold this, please rearrange your disclosure, your risk disclosures. They're going to ask you to make them alphabetical, or they're going to ask you to rank them in terms of importance or, various things. And you're going to say yes to some, you're going to say no to some, and that happens at day 45. Um, before that, it'll take a couple of weeks to draft the prospectus and get it ready. Um, from the time you're, you're ready to go. So, all in, it's probably closer to 120 days, something like that
From the time you tell us, let's go and you sign an agreement with us. But the actual process is 75 days with the SEC staff. One of the things to consider is that during that 75 days, you're actually in a quiet period with the SEC. So you're not allowed to market and promote your fund publicly. It's, it is an unregistered security. And if you, uh, if you talk about it during that time period, the SEC considers it gun jumping and they can actually delay your launch by six months if they find out that you're publicly promoting it. So, um, what many issuers and, and, um, our clients tend to do is, is, let it go effective at day 75, but maybe we don't
Actually list it for another couple of weeks or a month, right? So that we can get the website live. We can start talking about it. They can talk to their clients, existing relationships that they have and let them know that it's there and it's going to launch here in a couple of weeks and, use that time to, to build some momentum for the product. So we give a lot of guidance on that. Maybe they have some assets that they're going to be able to move into the fund from existing clients. We'll give them some guidance on how to do that, right? Work it in as, as volume and, don't plop it all in, day one necessarily,
Right. We can talk through kind of some strategies, how best to do that and make it advantageous for their clients and everything. So we'll put a lot of strategy, but, behind what that looks like and the, the best way to bring a product, to market in general, we spend a lot of time helping them, potentially create a custom index and maybe their strategy that they're running right now is an active strategy, but maybe it works better as an index. And there's reasons you might want to make it an index versus active. it's a very blurry line between what's active and passive. Active or passive has nothing to do with the frequency of changes in a
Portfolio. It really has to do with how you arrive at your security selection. we have an index-based product right now that turns over 80% a week. So, that's still considered a passive product because the fund just tracks an index. So we talk through it with them and trying to decide is, right now you're running this and you're considering it active, but can we help you make this an index, follow some rules, and then you have an index you can talk about and market and it gives you different marketing opportunities and things. So lots of consultation we do before we ever, file a prospectus or anything.
So let's talk about that a little bit more in terms of active and passive because we run an active strategy. The guidance we got was to run it as passive. So, and I know why, but from your point of view, can you give everybody the advantages of having a passive rules-based index rather than running it purely active? Because we're seeing a massive growth in active right now, which is great, but there are a lot of active strategies as you said that are indexed passive. So what are the advantages of having that index be passive?
Well, it can be a couple of things. One is from a marketing standpoint, right? Indexes, at least currently are not regulated. And so you can talk about the index in different ways than you can talk about the fund. And so we may have clients who come to us to launch who are not a registered investment advisor currently. And by launching an index, they don't have to register with the SEC. And so we can help them create a custom index. They can talk about the index. They can focus their comments and everything and just marketing the index itself. Let us be the registered entity and we'll talk about the fund and handle the regulated aspects of things. And it keeps them from having to enter that regulated
Sphere of things. And so it saves them time and money and a lot of work and of having to become registered. So there's a big component to it there. The index also allows to have back-tested performance and those kinds of things that the fund can't do, right? The fund is not allowed to show back-tested performance, but an index can. And so there's different regulatory reasons why someone might want to have an index out there that you can talk about and utilize from a marketing perspective. What about the tax benefit? Yeah. So the tax benefit is, there's active funds now do, of course, have the ability to use custom baskets that previously they didn't, which was one of the big hangups, right? Originally, why index-based funds were so much more in demand. But so that has helped level the playing field.
Previously, active funds couldn't use custom baskets the way index funds could. So I think a lot of the tax benefits are a much more level playing field now than they used to be at this point. But, four or five years ago, that was not the case. Index funds were certainly superior in that regard.
So you mentioned service providers. Do you guys do anything in-house or is that all outsourced to third parties in terms of admin and things like that?
So, we certainly use outsource for fund admin, fund accounting, custody, and distributor. But the rest of the services, we have brought in-house over the years. So we have full in-house portfolio management. So, previously when we launched, we outsourced various sub-advisors, but that's something we brought in-house quite a few years ago. So we have four full-time portfolio managers at our firm now that handle all of the PM work and the trading functions for our clients. We've brought marketing services in-house over the years, all of the legal and compliance we've brought in-house. So we have a full legal and compliance team now in our offices, accounting and finance. We brought in-house as well, but we still utilize outside firms.
We actually are the only white label ETF issuer that has multiple firms. So we actually have three different multiple series trusts that we launch funds under. We work with U.S. Bank Corp. We work with SEI and we work with B&Y Mellon for our three separate trusts. The reason we do that is just choice for our clients. It doesn't matter to us, which set of service providers somebody might want to work with. It's really about cost and choice and finding the right fit with the right set of service providers for our clients' funds. depending on what somebody might want to launch, we might recommend one set of service providers or the other, depending on the complexity of the product or the nature of what they're wanting to do. But if they have a specific type of,
A specific relationship with one of them already, we're happy to leverage that. Let them work with, whichever one they might want to work with.
Interesting. Do you guys do index calculation internally or is that outsourced as well?
That's outsourced as well. We'll help them create the index and, we can do back testing with them. We can, help them, do all of the, make sure it works with all the various rules, with all the RIC compliance and all those kinds of things, but we outsource the calculation. We work with all the major index providers at this point and have for quite a few years, but we don't do any of the calculation in-house.
Got it. So you've helped launch over 80 funds. Do you guys do any sort of due diligence on the front end before launching a fund for a client? Meaning, are you looking at strategy or the person coming to you and maybe offering frank advice that this is probably not a good idea?
Yeah. Oh yeah, for sure. We, we turned down quite a few products, um, uh, from all shapes and sizes. In fact, we, we, um, have gotten a little bit more picky, I would say over the years as to, to who we're willing to work with, what kind of products we're willing to launch, um, certainly have changed, um, over the years as, as to what, um, what kind of clients we want to work with. So we do certainly diligence on, um, the people and the companies or the individuals behind it, any specific product, um, to make sure that, again, we, it's somebody we want to be in business with. Um, but we look at the product itself. Is this a product that we want to be
Involved with? How complex is it? Do we think it's going to gather assets? Um, do we think it's something that, that the world needs, honestly? Um, is it the fifth, one of these types of funds, right? There, are there four of these already? And this one is just slightly different. And is it different enough that, we think anybody's going to buy it or is it, um, is it meaningfully different, where, where we think it's got a shot. So we absolutely spend a lot of time with that and trying to decide if, if, if it's somebody we want to work
With and does the product have legs? Sure. So I want to talk a little bit about, uh, the ETF landscape. And one of the things that we did recently is, um, we transition our product, uh, from our NYSE ARCA to NYSE floor. Do you, do you see more funds, um, specifically, maybe smaller boutique funds starting to look at a direct market maker rather than, uh, cause we had issues with, with auction as I'm sure some of your funds do as well. Do you see that being something that is going to be, uh, more prevalent here in the future or something that you're advising on?
Yeah, I think it will. We, we did one as well. So we just transitioned one of ours from ARCA to the floor as well, the first one. So we're, we're using that as a test case here for a little bit for see how that goes, um, to decide if we, if we want to do more or have any start that way. Um, I think it's, everything went so electronic so quickly that certain products just need that handholding, right? Some of them are just a little bit more, um, high touch and they need that closing auction to, to be watched a little closer than others and have a tendency to get a little wide at the end of the day. Um, the computers just don't watch them as closely, um, based on their
Underlying or, for whatever reason. And, and they just need somebody there to keep them tight at the end of the day. And so, um, I I'm glad that the New York has done that. It's great to, to see them kind of respond to that. We've been talking to them about it for, for quite a few years. Um, the issues we've had with some of the market makers and some of their automated systems blowing out at the end of the day and things getting, getting away from them. So, um, we're, we're excited to see it and we've got one doing it right. that just switched a month or two ago. So we're watching it closely and excited to see that.
Yeah. We transitioned in February and it's been a world of difference that, that was one of the only things that, um, kept me up at night was I didn't know where we were going to close. And, um, if you've gotten a big deviations in, in NAV, um, it's not something that advisors want to see, especially if they have a lot of their clients in the fund. And, uh, so far we've had a very positive experience. So, um, it's good to hear that, uh, your client is having a good experience as well. So the, the ETF landscape has just exploded. Um, you've seen it, you've participated in it. How do you see it evolving over time here in
The future? I'd say the, one of the most interesting trends that we're seeing right now, and I, and I really think is going to be the next explosion for the industry is we're seeing advisors and money managers launching ETFs just to use as a tool, right? It's not so much that they say, this is the theme that's missing or whatever. It's that they're saying, we need to be using this wrapper for our existing strategies. we're launching funds for people right now who they, they don't care if anybody else ever buys the fund, right? They're using it for their clients. It's just a much more tax efficient vehicle. They're going, we're, we're running this in these SMA strategies and our clients are getting hit with cap gains just because the way we trade,
Why would we not launch an ETF for our clients? Just move the money in the taxable accounts, put it in ETF wrapper and not let them get hit with these cap gains. If anyone else buys the fund, great, but we're basically able to just make a much more tax efficient vehicle for our clients. And this is what we're doing. Interesting. So it's really, I think that's the next leg up for asset gathering in the ETF industry is advisors just, or money managers just using it. Of course, mutual funds are converting. We're working on a mutual fund conversion. We're going to be filing for shortly as well. We're going to continue to see that. I think mutual funds will continue to bleed assets over into the ETFs.
That's not news to anybody, I think in the industry at this point, but the ETF being launched, not necessarily as a way to gather new assets, but just as a tool and a wrapper for existing assets for an SMA manager, I think is really going to be a big leg for the industry next.
Yeah. That was one of the, that was the main reason we launched. So it's interesting to hear you say that. Of course we want to, we do care if other people buy it. So, we're out there actively trying to market, but it was, we had a flagship strategy, the, one of our SMA strategies needed to make it more tax efficient and the ETF was the answer. So that's interesting and definitely part of our story. Do you think that ETFs are going to become more available here in the short term or in the future, I should say in retirement plans, it's still heavily mutual fund. How do you see that working out over time or do you see a path for that?
I think they will. I think, right now that 12B1 fee has just dominated retirement plans that mutual funds have. And until either, 12B1s find a way to get paid in ETFs or 12B1s go away from mutual funds and advisors, just are forced to get shifted over to, to fee-based models and quit getting 12B1s. I think that that's the biggest holdup. And I think at some point that's going to happen. But I, I honestly, you show me how someone gets paid and I'll show you what kind of activity that, that gets, gets put in place. So I think that ETFs, will, will certainly move that direction. The daily liquidity or the intraday liquidity of,
Of ETF, then becomes a bigger benefit, right? If you're in a retirement plan, the taxes don't matter. So the intraday liquidity becomes a, becomes a kind of the bigger selling point, right? At that point. And, um, ETFs still win there. And I think that, um, that in the lower cost structure of ETFs, versus mutual funds are still better. And so I think, once you get that compensation structure of how advisors get paid and take that away from a 12B1 type plan, I, I think, ETFs will, will work their way in there.
Yeah. Yeah. It's, uh, um, it's always, uh, it's always been, especially in this industry is, uh, follow the money and you'll follow the activity. So, um, uh, so which kind of leads into this with ETFs, what do you see as a threat to the ETF industry as a whole? Is it direct indexing or is there something else out there? the direct indexing thing is interesting,
Right? I think for a certain slice of what I would consider active investors, there's some appeal there on the other side though, frankly, I think that's, it's just more work for people. Right. And I think a lot of people just don't want to do that work. That's why they like ETFs, right? That they don't want to step up and do that. They want to just be able to buy it and forget it, or they want to be able to get these exposures. They want to be able to pick a fund, buy it. And when they change their mind on a theme, just swap the ETF, they don't want to have to do the, do the work and set up the direct indexing and all of that. So I don't see it as, you know,
Some big existential threat to the ETFs. I just don't. I think it has a use case. Um, but I don't see it as a threat to the ETF industry, honestly. It's just more work. And a lot of people just don't, don't have the time for that. Um, regulation is always the biggest threat I see out there. Every year there are new regulations imposed on, on the financial industry at large. Some of them are warranted, this industry has a tendency to, um, take a good idea and beat it to death. And so I think, uh, there are, um, are reasons for, for some regulation, but, we get new stuff imposed on us all the time that add costs, to what we do that, that end up
Having to be passed along in some form or fashion. So I'm always concerned about, regulations, impacting, um, impacting the industry and, the benefits of, of certain products. But, I really don't see anything dramatic on, on the horizons that are, that are going to have a
Huge impact on, on us right now. Got it. Um, do you see there? So with the explosion of ETFs and the number of products out there, um, so there's a, uh, a minefield of small issuers. Um, do you see a world where you're going to see consolidation and roll up much as we've seen in the RIA space? Uh, do you see a world where private equity starts to take notice, um, and starts trying to roll up some of these smaller issues, issuers into, into bigger firm structures that they can, uh, maybe
Have a better ability to scale? I, I think there will be for sure. I think the hardest part about this and what's prevented that honestly from happening. And we see this all the time, right? We have small funds. We have large funds and we have a lot of people who reach out and say, look, can we buy this fund? We'd love to merge these funds. Let me do all sorts of creative things. The problem you run into is the proxy that's required. And the proxies are so hard in the ETF world, right? We don't know who our shareholders are. We have no way of knowing that the, the proxy that's required of an ETF is what's called a '40 Act majority. Anytime you do a change in control of an
Advisor or a reorganization of one fund to another fund complex, it means you have to get a majority of the shareholders, 51% have to vote. And of those, a majority have to vote in favor. And while that, doesn't sound crazy, the problem is people just throw proxies away. And it's not that people tend to vote against these things. It's that they don't vote at all. And, we've been a part of several proxy campaigns over the years and most of them have been successful. Um, but sometimes you just can't get it done because people just don't return the, um, return the proxies. They're not voting against it. They just don't vote at all. And you're calling them at dinnertime, you're sending them letters, you're doing everything you can to get them to just please vote. Um, even if you vote to
Abstain, even if you say, leave me alone, I'm abstaining. That's fine. That's, that's, goes towards quorum towards that 51%. Um, but that's just expensive and time consuming. And for a fund that has 10 or $20 million in it, you're going to spend hundreds of thousands of dollars to do that proxy. And that's, what's preventing the consolidation in this industry and preventing some of that deal-making, which frankly is good for shareholders. And that's why you see funds have to liquidate, which is bad for shareholders, right? They're getting cashed out and getting forced into taxable events. And I really think this is something the industry and the SEC should look at is this proxy requirements. Um, it's not good for shareholders. It's really not, um, that proxy,
That '40 Act majority requirement, if people are not willing to vote, they should not be required to have that to reach quorum. It's just really not good for shareholders. They're being forced into liquidations that otherwise, could go on and do other
Things. And, um, it's, it's not the right answer. It's very interesting. So this has been very helpful and also very educational. And I hope anybody thinking about launching an ETF, um, listens to this because there's a lot of great nuggets in here. So I want to pivot to final two questions here. What do you guys do post launch for a fund? So I know you, you set them up, um, you get them out there, you get them going, but, um, other than some of the internal admin services that you provide, is there things that you do for funds, um, after launch?
There are, well, certainly, we like to tell everyone that the fund launches the starting line, not the finish line. Right. Um, and that's where it really gets going. Um, certainly for us, from an operational standpoint, that's where all the real work begins. So there are a myriad of operational and legal and, and, and hurdles and ongoing work that really kicks off for us. Um, so you, you guys are aware of that from, from running your products. That's where all of the hard work really gets going from a marketing standpoint. We do have a full marketing service that we offer for our clients as well. So we run email campaigns. We help host webinars. Um, we're running the funds websites. There's a PR component, um, that we do working with our clients
To, to try and help keep them out there. Um, we help, uh, with digital campaigns. We in fact, run social media for several of our clients where we're running their Twitter and their LinkedIn, um, for them. Um, so there's, a whole section of, of additional ongoing services, um, that we do for our clients. We're, working to try and get them approved at the various wire houses, so ETC's approved at pretty much all of the wire houses and have funds at all the major wire houses. And certainly all of the, LPLs and Raymond James and everybody there with, we've got, um, five and a half, almost $6 billion in assets under management, um, here, uh, uh, coming in the next month or so. And, um, we've got close to 60 funds, I guess, um, um,
By the time this comes out. So, um, we've got, um, lots of, uh, product out there and, and are continually trying to help get those approved and on recommended lists and approved lists at, at all of these firms. So that's a part of our service to our clients is, consistently trying to keep them out there in front of gatekeepers and research firms and things like that.
Well, Garrett, I think you run a wonderful company. Uh, I think being able to provide a new issue or all of these different services, um, is invaluable. Um, we, we did everything ourselves. Um, so it took us longer, costed us much more money and we're learning along the way. Um, so it'd been very helpful, uh, to have a, uh, to have a voice like yours. So where can people go to learn more about your company and
Your services? You bet they can visit us. Uh, our website is exchange traded concepts.com. Um, that's the easiest way they can find us on there. They can just submit a contact us, uh, form, uh, right through the website. Uh, we'll reply back with a full packet of information, all of our intro decks, um, set up a call with myself and, uh, our business development team. Happy to jump on, answer any questions, um, walk through exactly what we do and how we do it and
Be glad to, glad to talk to anybody. Well, Garrett, thank you so much for the time today. This has been really insightful and I look forward to having the opportunity to meet you in person at some point in the future. Looking forward to it. Thanks so much for having me, Brad. I appreciate it. Yeah. Thank you. Thank you.
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