ETF Class | Salvatore Faia (President & CEO) Insights
Vigilant Insights
Introduction
Dimensional Fund Advisors has a pending application with the SEC with the hope of expanding the exemptive relief that Vanguard had previously obtained around twenty years ago.
Due to the complexity of the situation and the regulations involved, it is important to note that if granted, there will be ongoing and significant responsibilities for the directors involved.
For this reason, BoardIQ reached out to President & CEO of Vigilant Compliance, Salvatore Faia, JD, CPA, CFE, for comment on the tasks Directors would face.
Salvatore Faia, JD, CPA, CFE Insights
Concerning trading costs related to the ETF class, Salvatore noted that “given the operational difficulty of allocating trading costs strictly to the mutual fund share classes alone, directors may need to discuss whether they believe adding an ETF share class would increase the fund size and whether that growth would offset the downside of allocating trading costs across classes, including to the ETF class.”
When looking at the big picture, they could “look at the cake in total… [saying] OK, we understand that all the trading costs come from the mutual fund, and we think they are reasonable, and we think [adding the ETF class] is pro-competitive”.
Vigilant’s Conclusion
As other Firms may try to apply for similar exemptions, it is important that all compliance implications are considered.
It is unclear whether the tax-efficient share class will improve the Fund’s overall tax efficiency while inhibiting other important areas of the mutual fund structure.
When considering offering new investment products, it is important to have an in-depth compliance assessment from experienced industry professionals.
Vigilant provides ongoing compliance consulting, support, and partnering that can aid Firms in making important decisions that will affect their business.