SEC Directs ETF Share Class Applicants to Follow Dimensional’s Lead
Hours after signaling it will approve Dimensional’s ETF share class application, the SEC told nearly 80 other fund firms they must refile in line with Dimensional’s template
On the same day it signaled its intent to grant Dimensional Fund Advisors exemptive relief to offer ETF share classes of its mutual funds, the Securities and Exchange Commission laid out next steps for the rest of the industry.
In a Monday afternoon call with more than 100 representatives from asset managers representing most of the other applicants, SEC staff said firms will be expected to update their filings to look “substantially the same as” Dimensional’s updated version, submitted last Friday, according to Kevin Gustafson, partner at K&L Gates, who was privy to the call.
That directive affects the nearly 80 fund firms that have filed requests to use the multi-class structure since Vanguard’s patent expired in 2023.
The staff will be granted “delegated authority” to review and approve these updated applications once Dimensional’s final order is issued, Gustafson said. That will potentially speed up the process, with staff expressing their intent to review the new filings “as quickly as is possible.” The timing of when firms refile could also affect how quickly their applications are reviewed.
No Guarantees
Still, the timeline won’t be uniform. Staff cautioned that approvals will depend on how closely each refiling hews to the Dimensional template. Applications with significant deviations may take longer to review, and there is no guarantee that all will be approved or approved at the same time.
Staff also shared technical filing details around the submission process for revising applications.
Clearer, Narrower Path
The guidance is a major development for fund firms that have been waiting years to see if the Commission would extend Vanguard’s once-exclusive model beyond a single firm. By instructing the industry to align with the Dimensional template, the SEC has created a more predictable but narrower path for approval.
For fund managers, the choice is now to conform closely to Dimensional’s language and potentially move quickly, or push for modifications and risk a longer review.
Industry Implications
The SEC’s notice of intent for Dimensional was as a watershed moment for the U.S. fund industry. If replicated widely, the multi-class structure could allow mutual fund investors to tap into ETF tax efficiency, while accelerating the migration of assets into the ETF wrapper.
Monday’s call made clear that Dimensional’s approval is not just a one-off, but a template the rest of the industry will be judged against.
