Exchange-traded funds (ETFs) have reshaped the investment landscape by offering transparency, liquidity, and low costs that appeals to both individual and institutional investors, including high-net-worth persons and family offices. For financial advisors and registered investment advisors (RIAs), ETFs have become not only investment tools, but potential business assets.
Today, thanks to new regulatory structures and third-party “ETF-in-a-box” providers, advisors can create and launch their own ETFs more seamlessly than ever before. This task, however, requires clear objectives, disciplined portfolio design, and a realistic understanding of costs, compliance, and operational hurdles.
Here are the five steps necessary for an RIA to build an ETF from scratch—and whether it’s the best decision for your firm.
The first and most critical step in creating an ETF is defining why it should exist. What problem does it solve, or what market gap does it fill?
Some advisors design ETFs to package their proprietary strategies, giving clients access to a model portfolio in a single, tradeable vehicle. Others create ETFs to target themed exposures (such as artificial intelligence), or to reduce tax drag. Regardless of the circumstance, a clearly defined investment thesis and customer benefit is the foundation for a successful ETF offering.
Next, decide whether your ETF will be passively managed (tracking an index) or actively managed (a custom basket of securities based on the manager’s discretion).
In both cases, you’ll need to partner with a fund administrator and authorized participant (AP) who can handle daily operations like creation and redemption of ETF shares.
Launching an ETF independently is complex and resource-intensive. Most advisors partner with a white-label ETF platform, commonly known as a “ETF-in-a-box” provider. This partnership allows the RIA to focus on the investment strategy while the platform manages the technical infrastructure, such as: ETF registration and listing on exchanges like NYSE or CBOE, custody and transfer agent services, creation and redemption management, regulatory reporting and compliance oversight, and marketing and investor relations support.
There is also an emerging (and increasingly popular) hybrid option, where third-party managers collaborate with the direct advisor on the client’s preferred investment strategy, serving as an outsourced extension of the core investment team while also overseeing day-to-day operations of the ETF.
Creating an ETF isn’t cheap.
Expect initial expenses to exceed $250,000 for legal work, filings, seed capital, and platform fees. Most issuers require a seed investment of at least $2 million to launch, which is used to establish liquidity and create the first ETF shares. And then there are ongoing costs, including custody, compliance, audit, and marketing, which can run upwards of $500,000 annually, depending on fund complexity.
Operational challenges include maintaining liquidity (by engaging market makers and authorized participants), managing tracking error, ensuring daily NAV accuracy, and meeting SEC disclosure requirements. For advisors without existing infrastructure or lacking sufficient scale, these can be substantial hurdles to navigate alone.
Not every advisor or RIA should launch an ETF. But for the right firm, it can be transformative. For example, firms and RIAs managing over $250 million who want their own proprietary investment models will likely benefit from creating an ETF. Likewise, family offices seeking tax-efficiency for their clients, institutional managers who want to expand into retail markets, and niche strategists looking to evangelize their investment approaches will also likely benefit from a custom ETF product.
Moreover, launching an ETF can strengthen brand visibility, provide clients with simpler access to complex strategies, and potentially open new revenue streams for RIAs.
For many advisors, existing ETFs already offer cost-effective exposure to almost any market or strategy. So why create your own? For some firms, the benefits include: brand differentiation, operational simplicity for clients, enhanced tax efficiency, and scalability across a wider client base.
There are some drawbacks, which include high upfront and ongoing costs, regulatory requirements, and compliance risk. For smaller advisors, using a combination of existing ETFs or model portfolios may be more practical. But if an RIA is looking to expand, a custom ETF is an increasingly popular solution.
Launching your own ETF can be a powerful step for RIAs and advisors ready to scale their investment approach and build brand equity in an increasingly competitive landscape. The process requires clear purpose, disciplined execution, and financial commitment. But if done correctly, a firm can access better clients, enhance operational efficiency, and open up new revenue channels.
In any case, the overall benefits of leveraging ETFs are the same: an investment vehicle that delivers transparent, tax-efficient, and scalable investment solutions not only for your clients, but your firm’s future.