Various Colors To ‘White Label’ ETF Providers

August 03, 2017

There are a lot of questions swirling in the wake of ETF Managers Group and PureFunds’ break over a group of ETFs, most notably the popular ETFMG Prime Cyber Security ETF (HACK).

Chief among them is who owns an ETF at the end of the day—a question ETF.com’s Dave Nadig addressed in a blog. But could this happen again?

It has certainly happened before. About a year ago, AdvisorShares and TrimTabs went through a similar break over the now-named AdvisorShares Wilshire Buyback ETF (TTFS), where AdvisorShares replaced TrimTabs as subadvisor for the fund with Wilshire Associates. Methodologies changed, the ETF got a new name and new advisor, but the ticker remained.

Sponsor Has Limited Control

At the time, AdvisorShares offered no clear reason for the decision other than to say its board found it in the best interests of investors. TrimTabs objected, citing shareholder “disappointment” over it, but then moved on.

AdvisorShares in this case, and other so-called white labels, are essentially third-party ETF providers that offer all the infrastructure and services—including exemptive relief, portfolio management, compliance, accounting, and all the aspects that go into bringing a fund to market—to ETF sponsors who don’t want to build the infrastructure from the ground up as well as pursue regulatory exemptive relief. It’s costly and timely.    

Fast-forward now to the PureFunds ordeal. As more and more would-be fund sponsors look to enter the ETF space for the first time, one key takeaway from these events is that in a white-label-provider relationship, there’s only so much you can control as the sponsor of a fund.

But more importantly, different white-label ETF providers offer slightly different services. We talked to three of these providers, including ETFMG’s Sam Masucci, who is at the center of the ongoing PureFunds dispute. Knowing the differences between them is crucial when picking an ETF partner.

 

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