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[The creation rate of ETFs has demonstrated great industry and investor interest signaling rapidly expanding growth and innovation. The U.S. has led this accelerating charge with 746 new ETFs launches in 2024 and 481 launches in the first half of 2025.
Fueling this growing movement has been new ETF participation from active investment managers, alternatives going mainstream, advisors running model portfolios, and family offices. Also adding to the rising momentum is a more modernized turnkey process into this marketplace through time- and cost-efficient platform launch capabilities that help new ETF sponsors gain entry with a speed-to-market approach.
To better understand the mechanics of ETF creation and how you can launch your own ETF, we were introduced to J. Garrett Stevens, Chief Executive Officer of Exchange Traded Concepts – an SEC registered investment adviser that created the first white-label ETF firm in the world specializing in helping new ETF sponsors create, launch, and manage custom ETF vehicles as a turnkey solution.
We asked him questions to learn more about his ETF-IN-A-BOXTM launch solution and how financial firms can participate strategically in the continued growth and diversification of the ETF marketplace.]
Hortz: What motivated you back in 2011, in the still early days of ETFs, to launch the first white-label ETF platform?
Stevens: My motivation for launching a white-label ETF platform came from my personal experience launching my own family of ETFs. We made our initial filings in 2008, and what we learned was that it took twice as long and cost twice as much as it was supposed to in getting those first ETFs to market. That process was extremely painful. We put all the infrastructure in place – built our own trust, our own board of directors/trustees, engaged all the service providers, and paid lawyers nearly a million dollars just to get all the legal filings done.
The pivotal moment was when we were closing three of our ultimately unsuccessful ETFs, I actually got several phone calls from people saying, ‘Hey, we want to buy you. We just want to take advantage of the SEC exemptive relief application process and your place in line. You already have the infrastructure fully built out. We want to launch our own ETFs, but we do not want to wait a year.'”
That is really where the white label idea came to me. Since we already had everybody and everything structurally in place, why don’t we help other people launch their funds? So, we essentially turned our ETF experience into a service business that can help other ETF sponsors avoid the painful, expensive, and time-consuming process we have experienced and be able to leverage the infrastructure we already had built to create a more efficient path to market for new ETF issuers.
Hortz: Can you review what are the major component functions behind creating and launching an ETF that new sponsors need to plan for?
Stevens: The major ETF component functions of launching an ETF include:
Legal and Regulatory – you need attorneys doing filings for the ETFs, the ongoing reporting, and compliance.
Board of Trustees – you are required under the 40 Act to have an independent board of trustees.
Trading and Portfolio Management – the infrastructure and team of traders and portfolio managers that will actually do all of the trading in the funds.
Regulatory Requirements – you have to have a liquidity risk management program, and if you have derivatives, you have to have a derivative risk management program. Everything has to be filed with FINRA. Your distributor has to review it and approve it before you can use it.
Custom Basket Process – the custom basket process makes ETFs tax efficient. Most firms have no idea how to do that process.
Marketing and Distribution Considerations – once you get into the 40 Act world, it is a whole other can of worms from a regulatory perspective and what you can and cannot say. Distribution is a complex process that a lot of people do not fully understand or get confused with what strategy to pursue.
Many firms underestimate the complexity of these components, particularly the custom basket process and regulatory requirements unique to ETFs.
Hortz: How and to what extent does a turnkey platform approach ring out time and expenses from launching an ETF?
Stevens: The main benefit of a turnkey approach is offering an already pre-built comprehensive ETF infrastructure where the organizational work is all done, essentially eliminating the lengthy setup process required when starting from scratch. This results in game-changing, dramatically faster launch timelines.
To illustrate this, when you come to launch an ETF on our platform, we can draft your prospectus in about two weeks, and get it filed with the SEC, which has a 75-day review period. That means we can have you ready to go in 90 to 100 days to full launch of your ETF. If you do that on your own, it is going to take six months to a year to get all that done.
As to cost savings, a platform can leverage and negotiate wide-spread cost reductions through its economies of scale representing its collective client base. In our case, we have over 110 ETFs that we advise or sub-advise right now that represents about $15.5 billion in Assets Under Management (UAM). So, we get favorable pricing from the various service providers, much less than if individual ETF sponsors negotiated on their own. We are also able to spread costs across all funds which means our clients are paying a fraction of the organizational costs, instead of all of them.
Also, having an experienced independent board made up of a wide range of ETF professionals with specialized knowledge that understand ETFs, how they work, and the lay of the land of ETF vendors and needed specialty services, is another key factor in reducing costs, accelerating speed to market, and delivering expertise and quality to the platform and our ETF sponsor clients. It is not that easy to find board members who have been in the ETF world for a long time.
For all the reasons mentioned above, that is why a turnkey approach provides such significant value.
Hortz: Besides creating & launching an ETF product, can you explain your ongoing portfolio management services?
Stevens: We decided to offer ongoing ETF portfolio management services since we saw that many traditional investment firms lack the experience and expertise with ETF-specific investment processes, like custom baskets, which are critical for maintaining tax efficiency.
We can also act in a sub-advisory role, we have a trading desk with a team of traders and portfolio managers that can do all of the trading in the funds for our clients, we can do the custom basket process, as well as index tracking, rebalances, security selection support, and tax efficiency management.
Hortz: What are some of the major misconceptions or inaccurate assumptions that some investment/asset managers have about launching ETFs that they should be aware of?
Stevens: There seems to be a persistent series of key misconceptions that investment and asset managers have about launching ETFs that relate to the regulatory environment, marketing limitations, and the reality of building a successful ETF in today’s crowded marketplace. These include:
“If You Build It, They Will Come” Mentality – One of the biggest misconceptions out there is that there is a ready market waiting to take advantage of your ETF investment opportunity. We have to remind people all the time that this is not that kind of an industry or marketplace like the early ETF days. We now have over 4,500 ETFs out there and we are in the midst of an ETF explosion of new launches.
Launch Day is Just the Beginning – With all the work that goes into launching the ETF, many get excited on that first trade date and look at that as the finish line, but they need to realize that is only the starting line…. That is when the hard work really begins.
Distribution and Marketing Challenges – The hard work of sales, marketing, and distribution of ETFs has its own dynamics and challenges that a lot of sponsors new to this marketplace do not fully understand or get confused about.
Wirehouse Approval Process – For new ETF sponsors, you should not count on the big wirehouses as a key part of your initial strategy as they have high asset minimums and track record requirements before they will even start the due diligence. They are likely not going to approve your ETF for years.
Because of these continuing misconceptions and others, we set up ETC Marketing Services to offer personalized marketing and distribution services to help more strategically raise the profile, visibility, and engagement for your ETF products.
Hortz: What are the most meaningful ETF trends you have been seeing from your vantage point?
Stevens: I think the major shift that has happened is from ETF Index Funds to Custom ETF Strategies to mirror existing active strategies. When we first got into this business, it was mostly index funds. They proliferated around new indices and ideas for a theme, whether it was on trends, robotics, country/regional/industry focuses, you name it, there was and continues to be endless variations being created.
The current propulsion of new ETF creation is being driven to some extent by active investment managers creating tax efficient versions of their existing strategies offering clients the option of putting their taxable money in the ETF and the non-taxable money in the SMA account. Advisors running model portfolios are also creating ETF versions because anytime they make portfolio changes in their model, currently they are creating taxable events, and it does not generate any, or at least minimal capital gains in the ETF investment vehicle.
New market participants we see increasingly launching ETFs are family offices and hedge funds. The latter because of their frustrations in not being able to market their hedge funds due to sophisticated investor rules. They are realizing they can do their active strategy or a light version strategy in an ETF.
An interesting trend I am seeing emerge is a new focus on client-specific ETF products rather than the mass market. If you can get $30-$40 million in an ETF, it is breakeven, covering its own expenses, and so then you can build and offer the ETF vehicle specifically for your clients. I think you are going to continue to see this trend expand of advisors building custom ETF products just for their client base or demographic.
This article was originally published here and is republished on Wealthtender with permission.
About the Author
Bill Hortz
Founder Institute for Innovation Development
To make Wealthtender free for readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a conflict of interest when we favor their promotion over others. Read our editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.
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