## [# Beyond the Buzz: What ETF Share Classes Mean for Mutual Funds ](/sections/etf-industry-perspective/beyond-buzz-what-etf-share-classes-mean-mutual-funds)
# Beyond the Buzz: What ETF Share Classes Mean for Mutual Funds
Why are some mutual fund giants still avoiding ETFs, what could the inertia mean for their business when the market slows, and what impact will ETF share classes have?
[](/contributors/john-hyland)
[By John Hyland](/contributors/john-hyland)
Oct 16, 2025
Edited by: ETF.com Staff
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## A Reason for Some Mutual Fund CEOs To ....... Do Nothing?
The ETF industry is all excited about the SEC moving forward to allow mutual fund firms to offer both mutual fund and ETF shares from the same base fund. So far, most of the analysis touches on the opportunity for mutual fund firms while cautioning about the operational challenges to be met to offer a fund with both mutual fund and ETF shares. But recent history suggests that there may be another outcome for many mutual fund companies that have not yet embraced offering ETFs. That is the renewed opportunity to do nothing!
It is no secret that the traditional mutual fund industry has been unbelievably slow to embrace the innovation that was the ETF wrapper. On the cusp of the 2008 Global Financial Crisis, a full fifteen years after the introduction of ETFs, only a few of the 100 largest mutual fund companies had actually gone after the ETF space. Notably Vanguard, by using the multiple share class structure, and Invesco, by buying PowerShares. The rest of the ETF issuers were generally not the big mutual fund families.
Even by 2015, when a dozen more large mutual fund families had joined the space, the overwhelming majority of the 100 largest families were still MIA.
Now, in 2025, a chunk of these laggards are still laggards despite the fact that, for the last 15 years, the mutual fund industry has seen almost nothing but net redemptions year-over-year. Unless your name is Vanguard, it has been pretty bleak for selling mutual funds. Surely now the laggards will move forward? Well, maybe not. This raises the question of why.
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## The Business of Caretaking
The answer can be summed up with the statement “Many mutual fund CEOs are neither leaders nor business builders. They are just well-paid caretakers.”
What! These men – and they are mostly men– grace the cover of annual reports. They talk in serious tones about their stewardship of money on CNBC. Hell, lots of them have MBAs from places like Harvard. How can they be mere caretakers? The answer is because it is easy.
The glory days of the mutual fund industry were the 1970s, 1980s, and 1990s. This is when these firms went from small scale operations to major asset managers. But if you look at the industry flow data, it is apparent that the late 1990s were their high-water mark. The Dot Com bust was really the event that cost them their “Golden Age,” and the 2008 GFC crushed it. A dead cat bounce in 2009 in terms of inflows, followed by outflow misery ever since.
Now, picture you are the current CEO of XYZ Fund, Inc., a long established $60 billion in AUM mutual fund family that has so far failed to get into ETFs. We will call you Mr. White. Mr. White is likely a man between the ages of 55 and 65 years old. Let us say he is 60 this year.
Ask yourself two questions: How old was Mr. White when the glory days started to fade? What was he actually doing at the time? The answer is he was 35 years old and likely a junior level executive somewhere. But wherever he was, he almost certainly was NOT the person responsible for building XYZ Fund, Inc. into what it became. That was the work of his predecessors.
Somewhere along the line he managed to get the top slot at XYZ long after the growth had faded. Despite that he still gets paid millions a year by his Board and, if he legs it out a few more years, they will shower him with more rewards when he retires. Why would the Board do that? What the Board mostly looks at is AUM. Despite the fact that more people sell their XYZ funds each year than buy, the Firm’s AUM has actually gone up due to the long running US equity bull market. They think Mr. White must be doing something right. They are, of course, engaging in an old Wall Street fallacy of confusing brains for a bull market.
## Only 2 Ways Forward for the Mutual Fund Industry
But why won’t Mr. White see the handwriting on the wall and really get into ETFs? If they do not, the firm will get brutally crushed as soon as the US equity market really weakens. XYZ would see massive redemptions due to tax loss harvesting and, when things get better, all that cash goes to work with someone else with ETFs. The US market falls 20%, XYZ loses 50%+ of their AUM, and it is a long slow downward spiral from there.
For Mr. White, there are really only TWO reasonable paths forward.
One – he does nothing, collects his fat paycheck, and hopes that he retires while the getting is good. This is the caretaker mentality.
The other is he actually has to be a builder and a leader. He has to fully commit to ETFs, fire a lot a lot of the mutual fund staff, hire a lot of ETF people, and almost certainly take a short-term hit on AUM, revenue, and net profits. His Board will howl about the cut in profits even if, in the long run, the alternative is vastly worse. The mutual fund multiple share class structure is not going to change this reality.
Honestly, what would you pick if you were Mr. White?
## Layering In The Impacts of ETF Share Classes
For the last 10+ years, Mr. White has offered his Board a number of excuses as to why now is not the time to go into ETFs. Those explanations are starting to wear thin for even the least observant Board members.
So how does the new multiple shares class news impact Mr. White? Because of all the operational questions with using this new structure, it gives Mr. White a new reason to tell the Board, “It is very interesting and we are studying how we might make use of this for XYZ.” How long will he study it? Years. He has already dragged his feet for 10+ years so why not until he retires at this point, and dumps the whole problem on his replacement?
There are three likely losers here. The shareholders in XYZ Fund Management who will see their company stock get crushed, the employees of XYZ who will face very unappealing job prospects with fairly short notice, and most of all Mr. White’s successor. The new CEO will be denied the one thing he or she would need to turn things around. That is, time in a fairly benign environment to desperately play catchup. Interestingly, the investors in XYZ’s mutual funds are not going to be one of the losers.
Could the Board avert their impending doom? Sure, or maybe, but almost certainly the answer will not be by keeping a caretaker at the helm.
[ John Hyland ](/contributors/john-hyland)
John Hyland, CFA, is a retired ETF executive and longtime investment industry professional with a focus on areas as varied as commodities, emerging… [View Bio](/contributors/john-hyland)
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