When it comes time to launch an ETF, the first question most new fund sponsors are faced with is whether to go at it alone or use a white label – also called a series trust – to help them get off the ground.
Anyone outside of the Big 3 should give serious thought to working with a white label partner, as there are several advantages. Here are four that stand out:
1. Time
In this hyper-competitive environment, it’s especially important to get your product or idea out in a timely fashion. If you’re sitting around waiting for the SEC, another issuer could copy your idea and bring it to market before you, thus stealing the first-mover advantage.
If you’re going at it alone, it can take several years to get an exemptive order approved. On the flip side, if you’re working with a white label or series trust, you can check that off your to-do list in about five months.
One thing a white label issuer brings to the table is their own exemptive relief, something each ETF needs to get approved by the SEC.
2. Cost
There are also ongoing costs to take into account. In order to maintain your own exemptive relief and independent series trust, budget at least $25,000 per year – oftentimes more than that – for legal and operational costs.
On the other hand, typically, the cost to set up a white label fund is under $100,000, and at Nottingham, we charge less than $75,000.
As the saying goes, time equals money. If you’re waiting for two years for your exemptive relief to be issued, that comes with a price, as you’ll need to employ an attorney to communicate with the SEC every step of the way. Expect to pay upward of $100,000 in attorney fees just to get the exemptive relief issue squared away.
3. Existing relationships
White label platforms luckily have already made those inroads for you. We’ve already established that relationship and vetted the vendor – and likewise, the other party is already comfortable with the white label issuer. If you’re a newcomer, third-party vendors might not want to enter into business with you initially until they’ve vetted you and determined that your operation is off the ground.
You’ll need a custodian, authorized participants and market makers, just to name a few. Those relationships are not easy to establish.
Regardless of whether you’re a startup or one of the Big 3, there are multiple parties involved to get an ETF up and running.
4. Experience
You only get one launch period per fund, and if it’s botched from the get-go, your fund could be doomed to fail. It makes sense to work with a white label issuer that has decades of experience launching funds, so not only do you know what to expect, but they can mitigate any issues that could put your success in jeopardy.
No one sets out on this journey assuming they will go over budget, wait years to see their idea become a reality and work with inexperienced partners.
In an environment where innovative investment ideas brought to market by independent asset managers are in danger of going extinct, it’s important to have a trusted partner by your side throughout the whole process.