SBIL Sparks Controversy: ETF Innovation or Just a Fee Grab?

Earlier this month, Simplify Asset Management launched the Simplify Government Money Market ETF (SBIL), an ETF that invests in short-term U.S. government securities and repurchase agreements. 

On the surface, the fund isn’t especially remarkable. It’s the fourth ETF in the nascent “money market ETF” category, and operates under the familiar Rule 2a-7. But what makes SBIL controversial isn’t what it holds, it’s how it’s being used.

Within days of launch, SBIL had amassed more than $2 billion in assets. But flows from outside investors didn’t drive that. Instead, a significant chunk came from within Simplify itself as the firm began using SBIL as the cash management sleeve inside several of its other ETFs, like the Simplify Managed Futures Strategy ETF (CTA). 

In doing so, Simplify effectively moved what had been an internal function (managing cash and collateral via T-bills and repos) into a separate product, and began charging its existing investors an extra 15 basis points on those assets.

Simplify is best known for packaging alternative strategies—such as managed futures, covered calls, and volatility harvesting—within ETFs. These approaches often involve holding sizable cash or collateral positions, making internal cash management a key component of the overall strategy.

Nadig Calls 'BS'

ETF industry veteran Dave Nadig was among the first to call this out. In a widely circulated blog post and follow-up tweets, Nadig, an independent ETF analyst known for calling out questionable practices, described SBIL as a “money grab on their own shareholder base,” arguing that the firm had taken a previously bundled service and monetized it without investor consent.

“So as far as I can tell, what they’ve done is take a service they used to provide inside each fund (cash management) and found a way to charge an extra 15bps. So, pure greed, with a side order of grift,” Nadig wrote in a post on X.

He pointed to Rule 12d1-4 under the Investment Company Act of 1940, which allows fund-of-fund structures but requires boards to ensure that fees are not duplicated. The concern is that existing Simplify ETF shareholders are now paying for a service they were already getting, just through a more costly structure.

Simplify’s filings show that many of its ETFs held significant cash positions before the launch of SBIL. For example, the Simplify Commodities Strategy No K-1 ETF (HARD) reported over $11 million in Treasury bills on its books at the start of the year. Nadig argues that this makes the addition of SBIL unnecessary, and the 15bps fee purely extractive.

“I paid 75bps for cash management and derivs, and now I pay 75bps just for derivs and you charge me another 15 for the cash,” Nadig wrote in an exchange with Paul Kim, CEO of Simplify, on X. 

Industry Norms 

While fund-of-fund structures are not new, the norm in the industry has been to waive fees when a fund invests in an affiliated product. Corey Hoffstein of Newfound Research chimed in to say that virtually every major fund family waives these Acquired Fund Fees & Expenses (AFFEs), especially to comply with ERISA or to maintain investor alignment.

“I would challenge you to find me a single example of another fund that doesn't effectively waive acquired fund fees from affiliated funds,” Hoffstein wrote on X.

As of this writing, Simplify has not waived the fee for SBIL. 

Simplify Responds

In an interview with etf.com recorded Friday for release next Thursday, Simplify Managing Director and Portfolio Manager Jason England defended the move to include SBIL in other Simplify ETFs. He said that consolidating internal cash positions into SBIL was about operational efficiency and enhancing yield, not gouging investors.

“Trading individual securities in the short space across 30-plus ETFs is cumbersome, and there's transaction costs and operational costs that add up,” he said. “What we're trying to do here is not only enhance the yield, but then by cutting down on some of those operational costs and improving the efficiency, it should offset the additional cost and benefit all of our strategies over the long run.”

England argued that the 15 bps fee for SBIL is more than compensated for by the improved yield profile of the ETF, which can invest not only in T-bills but also in agency securities and repurchase agreements. 

He also noted that SBIL is the lowest-cost offering in its category, undercutting competing money market ETFs that charge 20 to 28 bps.

Simplify’s Kim echoed this defense on X, stating that all regulatory requirements, including disclosure, board review, and compliance with 12d1-4, had been met. He emphasized that fees, waivers, and AFFEs are discretionary choices, not fixed standards.

“There is no one-size-fits-all to AFFE," Kim said. "Fund-of-funds, cash, asset allocation funds all have different choices across fund families. There are tradeoffs to everything.” 

So, Who’s Right?

The core disagreement comes down to two interpretations of what investors are owed.

Critics say Simplify took an internal service, restructured it into a standalone product, and began charging extra for it, violating industry norms and investor trust, even if it complies with regulations.

Simplify argues that the move improved operations, delivered better yields, and was fully disclosed and reviewed by fund boards, with the net impact being positive or at worst neutral for shareholders.

There’s no allegation of illegality, just a heated debate over whether the move was fair, transparent and in line with investor-first principles.

For now, SBIL remains the biggest ETF in its niche and a profitable addition to Simplify’s lineup. But the backlash may be a cautionary tale for firms looking to monetize behind-the-scenes services without clearly demonstrating how investors benefit.