For asset managers looking to launch their own ETF or convert a hedge fund or mutual fund, ETF white label partnerships can provide a shorter path through administrative hurdles. Understanding the benefits and drawbacks of white label solution can help issuers make the right decision to benefit the short and long-term growth of a product.

ETFs: the white label solution

Turnkey white label solutions are attractive to asset managers, because they provide an easier path toward a successful ETF launch. Building the structure and administrative apparatus of an ETF takes time and resources. Turnkey white label solutions offer a way to launch a product quickly and efficiently. 

Key services provided by white label arrangements include:

• Fund administration. One of the biggest challenges in launching an ETF is building the administrative framework to handle SEC registration, oversight, and vendor management for the fund. White labeling allows issuers to plug into an existing administrative apparatus. Operations analysts and legal counsel that hand vendor relationships and SEC registration will benefit from these services.
• Compliance. White label providers come equipped with the legal infrastructure and processes to maintain fund compliance with SEC regulations. They prepare and submit legal documentation and handle oversight, noteworthy to compliance teams and attorneys. 
• Operations. In addition to handling compliance matters and addressing some of the time-consuming administrative needs of an ETF, a white label partnership greatly accelerates a fund’s time to market. They help set up a fund quickly, reducing costs through bundled services. Custom-branded indices can be leveraged to quickly create a starting investment universe for a product, calculate NAV, and track performance. This aspect of white label servicing is helpful for operations analysts and traders who handle day-to-day operations.
• Distribution services. Many white label providers are also invested in the success of the ETFs they help bring to market, assisting bales and business development professionals as well as relationship managers. It is common for white label providers to assist with marketing and sales. Also, because they can help get an ETF to market faster, they can increase the chance of a unique product being first to market.

Not every issuer has the time and resources to build an in-house team to handle the regulatory and administrative side of launching an ETF. A white label provider mitigates a lot of the initial challenges to launching a product.

Learn about: Best practices for launching an ETF

The benefits of a white label ETF partnership

Launching an ETF can be daunting for issuers who have never done it. Even experienced ETF industry veterans and issuers looking to launch an ETF in a new country will have challenges setting their product up for success.

When does white labeling make sense?

White labeling provides a host of benefits.

• No need to build a full infrastructure. The primary benefit of the white label is that it is turnkey.
• Cost-effective and time-efficient way to bring a new product to the ETF market. White labeling allows issuers to bundle a host of costs, and since the administrative and regulatory challenges are being met by a third party that already has structures in place, it creates a fast and cost-efficient way to bring a product to market. Additionally, given the performance benefits of being first to market with an innovative idea, a white labeled product could capture market success before a traditional product is even out of the gate.
• White label ETF platforms handle filings for regulatory compliance and regulatory approvals. Administrative work takes time, energy, and resources. White label platforms take it off an asset manager’s plate, allowing for increased bandwidth that can be deployed elsewhere.
• ETF white label arrangements can be a stepping stone to a full ETF operation. Having a product in the market with a reliable white label partner can give an asset manager the time and resources to set up their own in-house team, should that be a strategic priority. There are multiple ways they help. Getting a product out the door quickly and efficiently allows ETF investors to discover an asset manager and create a built-in audience for the next product. Additionally, they give asset managers the opportunity to become familiar with the market and regulatory space without the pressure to get it right immediately.
• White label service providers handle the operational aspects so that fund managers can focus on investment strategy. With a fund’s team available to focus on strategy, they can chase better performance and make better decisions for their clients.

Index providers like VettaFi provide white label services and can help asset managers bring index ideas to life and publish custom-branded indices. VettaFi’s index factory contains a treasure trove of historical data across many asset classes and regions, and can help iterate a custom product significantly faster than most white label service providers.

Does ETF white labeling have downsides?

Though white labeling provides a host of advantages, it also has some drawbacks.

There are times when white labeling will have an enormous upside, and other times when it will hold an issuer back. Here are some of the tradeoffs of going with a white label service provider rather than independently launching an ETF.

• It can be harder to stand out. White labeling can make it more difficult for your product to stand out in the crowded ETF ecosystem. However, working with a white label provider that can help on the distribution side of things, like VettaFi, is particularly advantageous in today’s challenging ecosystem.
• You will be reliant on a service provider. Choosing to go the path of the white label will inherently make an issuer reliant on its white label partner. 
• Loss of control. Arguably, the main disadvantage of white labeling is that it diminishes the amount of control you have over your product. Though you will still possess strategic control over your ETF, the white label service provider provides the platform. Some white label providers having branding requirements, though it is worth noting that many white label providers are relatively hands off.
• Higher embedded costs can lower your margins. Though white labeling can be advantageous from a cost perspective, especially for newcomers to the ETF market, it can ultimately erode your margins.

Like any service, white labeling is not a skeleton key that is suitable for every issuer. But depending on the circumstance, it can provide advantages that make it a superior choice.

The cost structure of white label services

A white label service can help issuers bring a product to market quickly and efficiently, but it is not without costs. Here is what to expect when you choose to launch through a white label service.

• One-time startup costs and launch fees. Every ETF requires certain legal and regulatory paperwork to launch into its market. The white label provider will handle this, but expect initial launch fees and costs. This fee is dependent on a host of factors. The baseline launch fee can be around $20K, while registration statements and filings are often another $30K. Board meetings and initial prep can add an addition $20K on top of that.
• Fixed annual costs. One advantage of white label services is that they provide operational support, legal compliance services, and even marketing and distribution assistance. These services are all helpful, but do come with an annual cost that is negotiated ahead of time. $175k to $200K, or even $300K is not uncommon.
• Annual fund expenses. Every fund has expenses. Investment management, trading, and administration all come with overhead, and white label providers charge annually for these expenses. You can expect $15k to $25k in variable ETF costs.
• Additional variable costs depending on AUM. Smallers funds will typically require more bps on the AUM. As a fund grows in size, the amount of bps will come down, though the larger fund size means that, even as the bps comes down, the costs could continue to rise. 6-15+ bps is common for funds that have an AUM below $250M. If a fund reaches $1B AUM, you could be looking at 3-8 bps instead. 

The annual costs depend on a host of factors, but asset managers can expect anywhere between $175K and $300K a year for white label services, with an extra $50-$100K in the first year for initial expenses..

Related: 7 tips for cost-efficient ETF operations

Questions to ask when evaluating white label providers

Once you have decided to use a white label service provider to launch your product, it is important to pick one that will best position your product for success. You should make sure you have a complete understanding of the cost structure compared to competitors. 

Evaluating track record and experience

You’ll want to know how many years of experience the white label service provider has with launching ETFs, and do due diligence on whether or not they have their own funds on their platform. A white label service provider who does not trust their own platform with their own funds is something to flag. 

Assessing platform health and relationships

You’ll also want to explore the historical performance of funds on the platform and see how the current funds are performing. If the white label provider has a history of having funds shuttered due to liquidity issues, that may indicate they lack the right stable of authorized participants and market makers. If their funds frequently run into compliance issues, you might want to make sure their compliance monitoring programs are functional. 

Understanding the network of relationships and partnerships the white label service provider has can help you partner with a firm that has the tools, talent, and relationships your product needs to give it the best chance at growth.

Here are the questions you should consider asking when evaluating a white label service provider: 

1. What is the total expense ratio and cost structure?
2. Does the provider have a track record of successful ETF launches?
3. How many years of experience do they have in launching ETFs?
4. Does the provider have their own funds on the platform? 
5. Are there any current funds on the platform at risk of closing due to low liquidity?
6. Does the provider have compliance monitoring programs in place? 
7. Who is responsible for day-to-day operations?
8. Does the provider have strong relationships with advisors, custodians, and APs? 

No two white label providers are the same. Taking the time to ask questions and vet providers before you commit is one of the best investments you can make in your ETF’s future success.

Ready to launch your ETF?

Picking a hands-on white label partner that is invested in your product succeeding will go a long way. A white label service provider that understands how to build an index and strategically deploy data for better distribution results can help your product stand out in a crowded market.

Interested in learning more about white label partnerships? VettaFi can help you bring your index idea to life using our Index Factory to back-test and publish a custom-branded index. 

Check out: Choosing the right ETF wrapper for your strategy