Many asset managers assume that converting a mutual fund into an ETF will, on its own, bring assets in the door. That assumption is a mistake. ETF conversions may have moved from a niche idea to a mainstream strategic option, but the wrapper change doesn’t replace the sales, marketing, and distribution work every fund needs to grow.

This guide explains the problem managers face when they don’t have a sales, marketing, and distribution plan for their ETF conversion, what to do about it, and when conversions make sense.

The ETF Sales and Distribution Myth

A misguided misconception drives many ETF conversion decisions, namely, that simply changing a mutual fund’s wrapper to an ETF will almost automatically generate inflows and revenue.

Firms often see that ETFs, as a category, have made the ranks of best asset inflows for years. But that industry-level recent history doesn’t necessarily translate into more sales without great marketing and sales effort.

If a mutual fund lacked a differentiated story and a strong sales and distribution before conversion, becoming an ETF does not become the fixt. The wrapper changes; the need for a coordinated sales, marketing, and distribution strategy does not disappear.

Advisors and platforms don’t discover a converted fund on their own. That means committing resources and time to build relationships with the sales platform decision-makers at broker-dealers, wirehouses, and TAMPs.

Firms must have a marketing content, communications, and digital plan that reintroduces the strategy to a broader audience as well as existing clients. Fund executives need to build and manage a social media and PR presence to build visibility, and advisor education that explains how a converted, actively managed ETF fits into a portfolio.

Firms that treat the conversion date as the primary goal line will likely be disappointed with the results.

The lesson for asset managers considering a conversion is to budget for marketing and distribution with the same seriousness as the legal and operational work. A well-executed ETF wrapper, paired with a weak marketing plan, will likely produce the same underwhelming results the mutual fund did before conversion.

A Brief History of ETF Conversions

The modern wave of ETF conversions began in March 2021, when Guinness Atkinson converted two small mutual funds into ETFs under its SmartETFs brand, the first transaction of its kind in the United States.

According to Morningstar, Dimensional Fund Advisors followed later that year with a larger conversion program that gave the rest of the industry a blueprint. The timing was no coincidence: a 2019 SEC rule change had already cleared much of the regulatory path for actively managed ETFs, and firms were looking for a way to move existing strategies into a lower-cost, more tax-efficient wrapper without starting from scratch.

What began as a handful of transactions in 2021 quickly became a standard tool for firms seeking better alignment with investor demand, and conversion activity has grown in nearly every year since.

20 funds converted in 2022, 35 in 2023, and 55 in 2024. By 2025, 60 conversions in a single year set a new record, bringing the total since 2021 to more than 160 transactions and roughly a quarter trillion dollars in converted assets.

However, converting your mutual fund into an ETF does not correlate with an ability to attract inflows. A small number of large firms have captured a disproportionate share of post-conversion growth. The ten largest active ETF issuers control 74 percent of active ETF assets, and the same dynamic shows up among converted funds.

 The Benefits of Conversion for Asset Managers

Why convert? The ETF wrapper offers several potential advantages for actively managed strategies, including tax efficiency, access to growing demand, broader distribution, lower costs, and a closer match with how model portfolios and multi-manager platforms deliver solutions today.

Tax efficiency

The ETF structure’s creation and redemption mechanism lets managers meet redemptions without selling portfolio securities directly, cutting the likelihood of triggering capital gains distributions. For a manager whose mutual fund investors have faced unwelcome year-end tax bills, this is often the single biggest selling point of conversion.

Access to growing demand

Investors and advisors have been moving money out of mutual funds and into ETFs for several years running, with mutual funds seeing sustained net outflows. Converting lets a manager meet that demand with an existing, proven strategy rather than trying to win back assets in a wrapper that is steadily losing share.

Broader and easier distribution

ETFs trade on an exchange and can be held in nearly any brokerage account without the investment minimums, share-class complexity, or platform-specific paperwork that often come with mutual funds. This can open the door to advisors and platforms previously unable or unwilling to hold the strategy.

Fit with model portfolios and multi-manager platforms

Many advisors now build portfolios using model-based or multi-manager platforms that favor ETFs for intraday tradability and easier rebalancing. A converted fund becomes easier to include alongside other holdings in these models, where advisor demand and asset growth are concentrated.

Lower costs

Conversions typically eliminate 12b-1 fees and other mutual fund share class costs, frequently resulting in a lower, single expense ratio. This can improve the strategy’s competitive positioning as the trend to lower fees continues.

What to Convert, What to Leave as Is

You’ll need to determine whether your strategy stands a stronger chance of growth as an ETF than in its current form. How many advisors and platforms may have an appetite for your fund or strategy? What do the decision-makers, the due diligence teams at broker-dealers, wirehouses, and TAMPs, want?

Can you identify and reach out to your highest-value clients? What is your competitive positioning, marketing, branding, and fee structure?

Your fund could be a strong conversion candidate if you have a credible track record, a differentiated, convincing story, a disciplined, repeatable investment process, and an obvious role in portfolios.

Good candidates for conversion

Mutual funds. Taxable mutual funds tend to convert well when the strategy already has proof points a broader audience can rally around: a multi-year track record, a repeatable process, and a story that’s easy for advisors to place in a portfolio. Funds with strong but underexposed performance — capacity constrained by distribution rather than demand — are often the best cases, since the ETF wrapper’s lower cost and larger shelf space can unlock fund flows the mutual fund structure couldn’t reach.

Separately Managed Accounts. For separately managed accounts, good candidates have strategies built on liquid, diversified holdings with enough consistency across client accounts that a single model portfolio can reasonably represent them.

Poor candidates for conversion

Mutual funds. Funds facing tax inefficiency, limited platform traction, fee pressure, or weak net flows generally don’t get healthier just by changing wrappers. If the underlying problem is distribution or performance, converting to an ETF won’t fix it.

Separately Managed Accounts. SMAs are often poor candidates because their core value proposition — customization — is what the ETF structure can’t preserve. Portfolios with concentrated positions, illiquid holdings, or customization are difficult to fold into a single fund vehicle without diluting what made the SMA distinctive.

 The Cost of Conversion

What’s the dollar cost of an ETF conversion? The best answer is an untidy one: it depends. Costs vary largely based on fund complexity, asset size, share class structure, and whether you do the work in-house or with a white-label partner. The biggest cost categories tend to be:

Legal and regulatory costs

Legal costs are typically the largest cost category. Regulatory and legal expenses include structuring the transaction, drafting and filing a registration statement and related documents, and organizing the transaction around a realistic timetable that allows for legal review, operational testing, and communications sequencing. Rushing this stage can be counterproductive.

Governance and approvals

Boards, trustees, counsel, and compliance teams need to review and approve the conversion. If your shareholders need to vote, the proxy costs of solicitation, printing, mailing, and tabulation) all add up. A shareholder vote is required only if the conversion changes investment policies, raises fees, or alters fund classification. Sponsors often structure conversions to avoid a vote when board authority allows it.

Operational transition costs

Operational costs include moving shareholders into brokerage accounts, coordinating with transfer agents and custodians, and combining or eliminating share classes.

Platform and servicing fees

White-label providers charge setup and recurring fees in exchange for handling much of the above, which is often the more cost-predictable path for firms without existing ETF infrastructure.

Marketing and distribution

The post-launch plan matters as much as the work that precedes it. Rebranding, advisor education, and platform onboarding costs continue beyond the launch. Firms also need to budget time and effort for ongoing sales support, digital marketing, and public relations to build awareness.

Frequently Asked Questions About ETF Conversion Strategies

In addition to assuming near-automatic new sales, what are common mistakes asset managers make when converting a mutual fund into an ETF?

Many asset managers underestimate how much firm-wide coordination a conversion requires. They may treat the conversion as a legal event and forget that, or don’t think that marketing, shareholder communications and education, accounting, transfer agency, and servicing functions all need to be involved.

Many asset managers misjudge ETF demand, underestimate costs, and skip competitive analysis and market planning.

A frequent oversight is failing to confirm early whether retirement plan platforms and custodians can hold ETFs, since many 401(k) plans cannot. Some underestimate how long it takes for everything to come together, and that the process may also include a review by the board of directors and shareholder approval.

Can a firm convert one strategy and leave the rest of its lineup unchanged?

Many firms take a selective approach. They convert one strategy that has the strongest ETF fit and leave the rest of the product line as is. This can reduce the risk of poor execution and allow the firm to test how ready they are before making mofe product decisions.

How long does a typical conversion process take?

In many cases, firms should expect a process that runs from several months to more than a year. Timelines vary by structure, service‑provider readiness, and board schedule. The timetable often expands when shareholder approvals, complex tax work, or platform coordination are involved.

The Final Word: The Wrapper Isn’t the Strategy

Many managers assume that converting their fund or strategy to an ETF alone will fix a fund with weak performance or limited distribution. Don’t be that manager.

Firms that see the strongest results pair the conversion with a sales and marketing plan. Done thoughtfully, conversions can create broader distribution, but none of those benefits accrue without a strategic sales and marketing effort. Converting the wrapper is only half the job; getting the word out is the other half.

Schedule a complimentary strategy session with Dan Sondhelm, CEO of Sondhelm Partners, to learn how to create an effective ETF marketing strategy.

Frank Serebrin is the Content Marketing Director for Sondhelm Partners. He leads strategic and creative content and marketing services for our asset management and wealth management clients.