Various Colors To ‘White Label’ ETF Providers

August 03, 2017

Exchange Traded Concepts

Garrett Stevens, head of Exchange Traded Concepts, a white-label service that currently has 20 ETFs in the market, commanding about $3.5 billion in combined assets, says what’s happening to PureFunds shouldn’t happen at all. Provider due diligence is key, he says.

“At ETC, this would never happen. And there are several reasons why. The most basic reason is that our agreements with our clients include very specific protection against this. We're not taking their fund; we're not going to utilize their intellectual property; we're not going to give their index license to anybody else; and we're not going to replicate that index on our own without them. All of that is in our agreements. 

Now, the ’40 Act is very specific in that we can't tie the board’s hands. We can't say, ‘We will never, ever fire you,’ because that's really the board's decision, not the advisor’s necessarily. We are the advisor—we are not on the boards—but we can tell them, as the advisor, that we're not going to recommend that type of action. Unless, of course, there’s nonpayment of bills by the client, or something like that.

But the big point for us is that this is our business, 100% white label. We have no product of our own. We don't intend to ever have any products of our own. So we're not competing with our client. You're not going to see any ETC-branded products out there. To that end, our sole job is customer service. It’s making sure these funds run within the regulatory construct; that they run in the most economic and efficient manner for our clients.

What’s different—and I can't speak for ETFMG—is our focus. We are stewards of our client funds. They've entrusted us to launch these products with their name on them. This is their reputation. It's their business. It's not really different than any other service-provider-type relationship. From a ’40 Act and technical perspective, yes, we are the ones managing it, and it's our neck on the line with the regulators, more so than our clients’. But our focus is on client service and making sure that their funds are representing them and their brand, not ours.

It’s surprising to me this could happen, because the first time we took someone else's fund or fired one of our clients from their fund, I can't imagine ever getting another new client after that. When you're looking to choose a provider, look at their board, look at their relationships with their current clients. That will tell you more than anything.”

 

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