To help its new active ETFs gain steam, Eaton Vance is paying brokers to play.
The Boston-based firm says it is will offer broker-dealers some compensation for technology costs associated with sales of the exchange-traded funds. In addition, the fund group may give a share of sales revenue to the BDs.
The news, first reported Thursday by Reuters and confirmed by Eaton Vance on Friday, comes about six months after the SEC approved the general format of its NextShares-branded ETFs, which will not disclose daily holdings.
The fund group has to take a new approach for a new product, says Stephen W. Clarke, president of Navigate Fund Solutions, the Eaton Vance unit driving the rollout. Thus far, four fund families have signed on to license the ETF structure under their own brands — Pioneer, Gabelli, American Beacon and Hartford — in addition to Eaton Vance.
“We are trying to work with our distribution partners to bring better performing product to the marketplace. We recognize that there is work to be done and are facilitating that,” Clarke said in an interview with ThinkAdvisor. “We do not see this as particularly sensational but as an extension of the spirit in which Eaton Vance has worked with its distribution partners for years.”
Eaton Vance is now awaiting approval for the specific 18 funds it has set up under this structure and expects to trade the ETFs on Nasdaq. An SEC decision should be made by late July, and Nasdaq could have the trading infrastructure in place for the products by October, according to Clarke.
“This makes sense, because it sounds like large broker-dealers will need to invest a lot of money in new technology in order for their advisors to sell these new Eaton Vance funds,” said Mark Elzweig, who runs a New York-based executive search firm, in an interview.
“On the other hand, I’ve never heard of fund companies paying for broker-dealer technology,” Elzweig explained. “It’s more typical for fund companies to sponsor conferences for broker-dealer producers and to provide wholesaler support and market commentaries to advisors. This development underscores the centrality of the large broker-dealers’ distribution channel for asset management firms.”
Investment in technology “is one aspect [of the arrangements], though it certainly is not the only one,” Clarke says.
Navigate has to charge partners for patents and other intellectual property, as well as services “to facilitate the development of the marketplace and for getting [partners] up to speed in bringing the funds to the market,” he explains.
Eaton Vance will be the investment advisor for each fund, while its affiliate Parametric Portfolio Associates will serve as a subadvisor for two ETFs. Richard Bernstein Advisors will act as the subadvisor for two other funds.
Eaton Vance and its affiliates manage about $300 billion in assets.
— Related on ThinkAdvisor:
- ETF Plans for American Funds, GAMCO Move Forward
- ETF-Mutual Fund Hybrid: The Next Big Thing?
- Active Mutual Fund Managers Clamoring to Offer ETFs: Cerulli