Know what to expect when converting your strategy to an ETF

While there is no one-size-fits-all plan, there are certain things that advisers can do in order to prepare for an SMA to ETF conversion.

If you are considering converting an SMA or mutual fund into an ETF in order to enjoy the many benefits offered by the ETF wrapper, you might be wondering what to expect during this process.

While there is no one-size-fits-all plan, there are certain things that advisers can do in order to prepare for a conversion and ensure that the process goes as smoothly as possible.
 

Preparing for Success

One of the most important things that an adviser can do to prepare for a successful conversion is to ensure that they have recorded all necessary information on current clients and their investments. Depending on the number of clients invested within the strategy being considered for conversion, this process could range from simple to complex.

The information that needs to be recorded for current investors in the strategy includes information on the existing client cost basis, all current positions, the length of time these positions have been held, and their purchase date.

The more clients that are currently invested in the strategy, the more complicated this recordkeeping process has the potential to be. However, the process is absolutely necessary in order to ensure that all clients will have ETF shares that are issued at the appropriate cost basis reflecting their prior investment.
 

The Importance of Relationships

Launching an ETF also requires forming specific relationships that an adviser might not already have in place. Advisers need to select a market maker for the ETF, as well as other authorized participants. Other needs could include a legal and compliance team, a custodian, and a back office team to facilitate the transaction. Advisers will also need to select an exchange that the ETF will be listed on. There needs to be a robust marketing, communications, and public relations plan and team in place well before the conversion takes place to manage messaging and engage not only with existing clients but with other investors who may benefit from learning about your strategies.

These relationships are essential and could have a significant impact on the success of the fund, so making sure that the right relationships are in place is critical before converting your strategy to an ETF.
 

Exchange Traded Concepts has Authorized Participant (AP) agreements already in place, as well as contacts with important ETF market makers, which can help ensure an efficient secondary market for your fund. ETC also has the capability to handle all legal and regulatory services associated with the conversion, either directly or through partner firms.

Ready to begin the process of converting your SMA or mutual fund strategy into an ETF? Contact us to discuss how we can help simplify the conversion process for your strategy.