Behind A New ETF White Label Issuer

Nottingham is looking to break into the ETF space at a time when white-label providers are under heightened scrutiny.

Reviewed by: Cinthia Murphy
Edited by: Cinthia Murphy

Kip Meadows

Behind the Fieldstone brand of ETFs, launched in August, is a new third-party white-label platform, Nottingham, which has been helping launch mutual funds for 30 years, and now has its sights on the ETF space. Kip Meadows, CEO of Nottingham and its affiliate under which ETFs are coming to market, OBP Capital, knows the tricky challenge of navigating this space at a time when white-label providers have garnered some negative attention. But he says opportunities abound for those who are partners with—not competitors to—their advisor clients.

The firm’s debut in the ETF space include the Fieldstone UVA Unconstrained Medium-Term Fixed Income ETF (FFIU) and Fieldstone Merlin Dynamic Large Cap Growth ETF (FMDG) Nottingham has been in the business of offering turnkey services for fund managers for 30 years. Why haven't we heard much about your firm as regards the ETF space?

Kip Meadows: You haven't heard about us in the ETF space because our 30-year history has been in the open-end mutual fund space until the last year or so.

When we started in the late 1980s, open-end funds was the growth area, and though we're still helping advisors set up open-end funds, the ETF is where the market is heading, so it was a logical progression to add that capability. We’ve spent the last few years getting set up. Does the ETF wrapper require different types of back-office services than mutual funds?

Meadows: The services are very much the same, with the exception of the transfer agency piece since ETFs settle trades with securities—both buy and sell side—in delivering baskets back and forth.

Some ETFs settle in cash, but since some ETFs settle in securities, you have to have a transfer agent function that's also combined with the custodian. We've partnered with Bank of New York to be the transfer agent/custodian for ETFs. How is your business model different from other white-label providers in the ETF industry?

Meadows: One of the key things is that we’ve been partnering with investment advisory firms for almost 30 years, in open-end funds, and have never taken the investment management of any of the funds in house.

We've never had a situation where a manager was replaced by our in-house investment advisory capability. To the extent I know about some of the other firms, that’s a key difference. Is there demand for another ETF white-label provider? What’s the opportunity for you?

Meadows: Time will tell. We’ve had a strong number of incoming inquiries, with investment advisory firms looking into plans for actively managed and smart-beta ETFs, some for an index ETF. I think there’ll be plenty of demand, because that’s where the whole industry is going—outflows from open-end traditional mutual funds, inflows into ETFs. How do you know a potential ETF client is right for you? And how do you know their ETF idea has merit?

Meadows: That’s a really good question. It's an art, not a science. And it's as much guesswork as it is anything. You hope it's an educated guess, but that's the same issue we have in open-end funds, and have had for 30 years. I’ve guessed wrong a lot of times.

We've had firms that we thought were a slam dunk to be a success that fell flat on their face. We've had firms about which we said, ‘I wonder if this idea's going to work,’ that do really well. A lot of it depends on marketing and how the story is told. Obviously, it depends on performance as well over time. Is it getting harder to seed ETFs? I recently read that market makers are increasingly reluctant to put up capital.

Meadows: We're not interested in starting an ETF with a partner advisory firm to be subadvisor unless they can bring at least $5 million, hopefully $10 million. Because you're right; market makers are not interested in going at risk on a whim.

We've been able to develop a strong relationship with Cantor Fitzgerald, but we've been able to say, ‘We have shareholders to buy the fund, so you'll be taken out immediately.’ That’s a better business proposition. As a shop, are you going to have a niche, and say, specialize in bringing to market smart-beta and active ETFs?

Meadows: Looking at the market, the indices have pretty much been done. The bigger firms have done such a great job with that, that we're not trying to reinvent those shops.

I think where the market is still in its infancy is in the active ETF and smart-beta space, as well as firms that may want to replace an open-end fund with an ETF. We have exemptive relief for all those. Is there such a thing as seasonality in ETF launches?

Meadows: A lot of times, a fund would like to have a full calendar year of performance for future years. If you start a fund in February, you're always going to have that partial period when somebody's looking at a year. That's where seasonality really comes into play.

In an ideal world, you have a full calendar year of performance for the first full year. But it's just like the old saying, ‘The two best times to plant a tree are 20 years ago and today.’

To the extent you can control it, plan ahead, but if you can't, just go ahead. No time like the present. What’s the biggest challenge to bringing new ETFs to market?

Meadows: Starting any structured investment pool—whether it's a mutual fund, a hedge fund, an ETF—you really need to play devil's advocate with yourself.

Investment advisors tend to be optimists, which is great, but realism is important. Clients will say, ‘I'll put $10 million in that fund.’ But when time comes to write the check it's always something that’s holding them back.

It’s expensive to start a fund, because you've got to get to that breakeven point of $15 million or $20 million, or it's not going to be a viable business opportunity, so if you don't think you can get to that point, it's probably not a great idea.

Contact Cinthia Murphy at [email protected]

Cinthia Murphy is head of digital experience, advocating for the user in all that does. She previously served as managing editor and writer for, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.