The ETF market has never moved faster. Assets have crossed $13 trillion globally, and a new PwC report projects that number could reach $35 trillion by 2030. New launches are running at a record pace. And for the first time, active ETFs are outpacing index funds in new fund launches, a complete reversal from where the industry stood just a decade ago.

To get a ground-level view of what’s actually driving this shift, we sat down with Garrett Stevens, CEO and co-founder of Exchange Traded Concepts (ETC). Based in Oklahoma City, ETC is the world’s first white-label ETF issuer and has helped launch hundreds of funds for asset managers, wealth managers, and family offices across the globe. Stevens has seen this industry from every angle, from the mechanics of a 351 conversion to the realities of trying to build a shareholder base from scratch.

What follows is an edited version of that conversation.

The industry has seen a dramatic surge in interest from asset managers and RIAs over the last five years. What’s driving it?

A lot of it is client demand. Wealth management shops, SMA managers, and money managers are all hearing the same thing from their clients: they want their strategies in a more tax-efficient form. General awareness of ETFs has grown so much that investors now know to ask for it, which they didn’t ten years ago.

There’s also a competitive element. Managers see their peers doing it and feel like they need their own ETF to stay in the game. We’re hearing real FOMO from people who haven’t moved yet. When we were doing this ten years ago, the industry was roughly 90% index and 10% active. Now it’s flipped. Active is 90% of new launches. That says a lot about where the demand is coming from.

Why is the ETF wrapper so much more tax-efficient than what managers were using before?

It comes down to the in-kind custom basket process. In a separate account or mutual fund, every time a manager makes a trade, that’s a taxable gain or loss for the client. With an ETF, we can make those same trades by sending out the underlying securities to an authorized participant and receiving new securities back. We didn’t buy or sell anything in the traditional sense, so you’re bringing in the new securities at roughly the same cost basis you had before.

The result is that gains can compound without being distributed as taxable events along the way. I tell people it’s a little like having your account moved into a Roth IRA. You’ll eventually pay tax when you take the money out, but in the meantime, it can grow largely tax-deferred. That’s a powerful advantage for clients in taxable accounts.

Not every manager is a good fit for the ETF wrapper. Who is, and who probably isn’t?

The honest answer is that the universe of good fits keeps growing. We’re doing products with options, derivatives, and leverage that weren’t possible in an ETF five or six years ago. So the question of who fits has a broader answer now than it used to.

That said, the biggest benefit is for managers whose clients are primarily in taxable accounts. They feel the tax advantage most directly. Trading-oriented strategies fit well, too, because the wrapper gives you simplicity: one ETF instead of five individual positions to get a particular exposure.

The firms that benefit less are large, tax-exempt entities such as foundations, endowments, and 401(k) plans. If you’re already tax-advantaged, the ETF’s main selling point matters less. That said, we still work with some of those institutions because they like the tradability and flexibility of the wrapper, even if the tax piece isn’t the draw.

Walk us through what it looks like to launch an ETF from scratch, with no existing fund and no client assets to convert.

The firms doing this are usually someone with an idea that isn’t already out there, or a small manager who’s been running a portfolio on paper or with a short-lived track record and wants to get into the most accessible distribution format possible.

On our end, the process is straightforward. We ask them to complete a questionnaire, run it through our internal new business committee, and determine whether the strategy works within our trading and compliance infrastructure. If it does, we go back to them with a plan. We file the prospectus, get board approval, and enter the 75-day waiting period. During that time, we’re doing implementation work: opening custody accounts, building the website, all of it. The launch mechanics, at this point, are the easy part.

What’s harder is the asset side. This isn’t ‘if you build it, they will come’ anymore. There are nearly 5,000 ETFs out there. Seed capital from market makers used to run $5 to $10 million at launch. Now it’s $250,000. When advisors look at a new active fund, they want a track record, Morningstar ratings, and outside validation. If you don’t start with some level of credibility and capital, you’re starting with a very steep hill.

We had a good example of what’s possible with the Korea Defense ETF, which we launched for Hanwha, a large Korean conglomerate. No seed money going in, but the timing was right for defense stocks, and it grew to around $160 million in its first year, completely organically. That’s rare, but it shows what can happen when the idea is timely and well-positioned.

What does a separate account to ETF conversion involve, and how does the 351 exchange make it work?

The 351 exchange is what makes the conversion tax-free for clients. Instead of selling positions and triggering a capital gain, we move the existing securities in-kind into the ETF. One day, the client has 50 individual stocks. The next day, they have shares of the ETF. Same portfolio, different wrapper.

There are rules that come with it. It’s limited to US securities, you have to control 80% of the fund at conversion, and there are diversification tests and waiting periods. You can’t move in assets with a zero cost basis and immediately trade them out. The IRS is watching for that.

The most significant example we’ve done recently was with RFG Advisory, a large wealth management firm with roughly 200 advisors running nine different model portfolios. We launched nine ETFs mirroring those models exactly. Their taxable client accounts moved into the ETFs through a 351 conversion: three thousand individual accounts over one weekend. Those funds now hold around $2 billion and continue to grow. RFG has no intention of marketing them broadly. They’re purely for their existing clients and advisors. That model, using ETFs almost like an account type rather than a distribution tool, is a major trend we’re seeing.

We’re doing the same thing with family offices. We’ve converted $500–600 million from one or two brokerage accounts into an ETF. They get shares back, any changes going forward are tax-advantaged, and they’d prefer nobody even knows they’re doing it.

Where do specialized ETF portfolio management and trading desks fit into this picture, and why are more managers outsourcing that piece?

The more complex the ETF market gets, the more portfolio management and trading become their own craft. You’re not just picking stocks or running a model anymore; you’re managing custom baskets, dealing with multiple authorized participants and market makers, and constantly watching spreads, liquidity, and tax impact. For a lot of asset managers, RIAs, and family offices, their edge is the strategy and the client relationships, not running an ETF trading desk. That’s why you see a real trend toward partnering with sub‑advisers and trading specialists who live in this world every day and already have the people, systems, and capital markets relationships in place. 

We’ve leaned into that at ETC. Sub‑advisory and portfolio management now account for a big share of our growth, and we run a dedicated ETF PM and trading team that manages dozens of funds across different advisors, structures, and use cases. Some clients want a full turnkey white‑label solution where we’re the advisor and PM. Others already have a trust, or they’re working with another platform, and they just want us to run the ETF side as sub‑advisor and trading desk. In both cases, the value is the same: they get institutional‑grade ETF execution, baskets, rebalances, conversions, and daily trading, without having to build that infrastructure themselves. It lets a boutique equity shop, an options income manager, or a large traditional firm all plug into the same engine and focus their internal resources on research, distribution, and serving their investors. 

Why would an asset manager choose to sub-advise an ETF as part of their own growth strategy, instead of only launching products under their own brand?

Sub‑advisory has become a really practical on‑ramp into ETFs. For some managers, it’s a way to get ETF experience and a live track record without taking on the overhead of standing up a trust, a board, and a full product platform right away. They can plug their strategy into an existing ETF, or into a platform like ours, as the sub‑advisor and prove the concept in the wrapper, see how the flows behave, see how the strategy trades, see what the tax profile looks like, before they decide whether to spin up a full lineup or pursue conversions.

For others, sub‑advising is simply a better business model. They might be great at running a specific style, credit, factor equity, or options‑based income, but they don’t want to be in the ETF operations business. By partnering with a firm like ETC on PM and trading, they can participate in the growth of the ETF market, showcase their IP in a structure that advisors want, and still keep their organization lean. From our seat, whether we’re helping someone launch a new ETF or sitting behind the scenes as the trading sub‑advisor, the goal is the same: take the ETF mechanics off their plate so they can grow faster with less operational risk.

How is a mutual fund to ETF conversion different, both in process and in what managers gain?

Mechanically, it relies on the same 351 rules, but the big operational difference is that mutual funds can be held directly with the fund company without a brokerage account. ETFs can’t. So you have to reach every direct shareholder, tell them the fund is converting, and either help them open a brokerage account or cash them out. That’s a lot of legwork.

We just completed one for Impax, a London-based asset manager with a US mutual fund family. They started with their fund that had the fewest direct shareholders ($190 million), specifically to get their feet wet before tackling larger funds. The conversion went well, and they kept their track record intact through the process.

On the question of whether converting automatically brings in new flows: there’s a Bloomberg study showing ETF flows run about three times higher than what those same strategies were getting as mutual funds. But that’s largely driven by larger, established names that already had momentum. For a boutique coming from zero flows, tripling zero is still zero. The ETF wrapper gives you better odds and more flexibility since anyone can buy it in a Robinhood account. But the marketing still has to happen. The wrapper doesn’t replace the work.

Vanguard held the patent on ETF share classes for years. Now that it’s expired and the SEC is approving other fund companies, what’s actually happening?

Most mutual fund companies have filed for share class relief at this point. A meaningful number have come through, but the first live product from Franklin involves significant manual work, and we’re hearing from service providers that mass rollout is late 2026 at the earliest. The idea is appealing: the same portfolio runs in both a mutual fund and an ETF share class simultaneously, with the ETF benefiting from in-kind redemptions. It also helps the mutual fund side by raising cost basis on remaining shares, which is a real tax benefit for those shareholders. A BBH survey found that 82 percent of investors would put money into an ETF share class of a mutual fund they already own, so the demand is there.

That said, expectations should be tempered. A lot of mutual fund assets sit in 401(k)s and retirement accounts, where the tax advantage doesn’t apply, and ETFs aren’t accessible anyway. The share class structure matters most for funds with meaningful taxable exposure. The operational complexity between the two share classes is still being worked out. It’s a promising development, but it won’t be the sweeping transformation some mutual fund companies are hoping for. On our side, we filed from the sub-advisor position, a different ask than what’s been approved so far, so we’re further down the line.

Before a fund launches, what positioning decisions have the biggest impact on whether it gets traction?

The first thing we tell people is: if you can’t describe your strategy in two sentences, go back to the drawing board. We talk to managers all the time who come in with elaborate products: a complex options strategy on one piece, 2x on another, historically outperforms the S&P by 200 basis points. And I have to tell them nobody is going to do that. Advisors don’t have time to understand it, and retail investors won’t take the risk on something they can’t explain. A strategy that requires a white paper to understand is not going to raise assets.

The name and ticker matter more than people think. Managers get attached to putting their brand in the fund name, but it doesn’t help. Nobody cares what brand an ETF is anymore. They want to know what it does and whether anyone else is in it. A short, descriptive name that survives being truncated in a Bloomberg terminal is worth more than a branded one nobody can parse. The ticker is a genuine marketing tool. Use it.

On the product side, thematic strategies have an easier time early than pure active strategies. With a thematic fund, an advisor just wants exposure to a theme like AI, robotics, or defense, and they’re not scrutinizing your historical record. With an active fund, they’re going to track it, wait for a Morningstar rating, and want to see someone else already in it. That’s not a reason to avoid active, but it means your patience and runway need to be longer.

What does effective marketing look like, and what actually works for getting in front of advisors?

Consistency is what separates the managers who build something from the ones who don’t. We see people run an email campaign for two months and stop, or spend on TV ads for two weeks and walk away. None of that works. New funds aren’t approved at the major wirehouses until they reach certain asset thresholds: $50 million for LPL and $150 million for the big wires. So your initial audience is independent advisors, and the goal is pure awareness. Email, blogging for organic search, social media, conference attendance, and outbound calling. We work with firms that call a thousand advisors a month. You treat it like a brand campaign: get the name and ticker in front of as many people as possible so it’s in their head when a client asks about that strategy.

Earned media and PR matter more than most managers expect. When a reporter covers your fund or quotes you as an expert, that’s third-party validation no ad can replicate. A good PR effort gets your story in front of journalists covering ETFs, advisor publications, and financial trade media. That coverage becomes content you can use across every other channel. Put it on the website, send it in your email, post it on social. Advisors pay attention to what other people are paying attention to.

What doesn’t work is wholesalers. We’ve had several clients use third-party wholesaling firms and none have renewed. It’s expensive, hard to track, and the reach is limited compared to a good digital effort. Banner ads on Yahoo Finance or CNBC’s website have outperformed wholesalers for several of our clients.

What surprises managers most once they’re up and running?

Compliance, every time. They come in thinking they’ll post about the fund’s great day on social media. They can’t. Anything with the fund name or ticker has to go through compliance review, which takes about a week back and forth with the distributor. They want to pay influencers. They can’t. For managers new to the registered fund world, it’s a genuine shock, and it’s one of the most common ETF launch mistakes we see, even from managers who’ve been warned.

The other surprise is wirehouse access. They assume that once the fund launches, every Merrill Lynch advisor can buy it. Even if the fund meets the asset thresholds, the wirehouses can still pass because they have enough in that category. Managers who thought their addressable market was the entire advisor universe find that reality is a lot narrower, at least early on.

You’ve watched funds grow and you’ve watched them shut down. What’s the difference?

It comes back to the story. You need something that gives an advisor a reason to pay attention when they have a hundred other things competing for their time. If it’s just another large-cap value strategy with a slightly different process, that’s a hard road. If there’s a genuine differentiator, a theme that isn’t already covered, or a track record in a specific area that stands out, that’s where you have a chance.

The other factor is seed capital. You don’t need to launch with $100 million, but launching with $1 million is genuinely risky. You need to keep the fund open while you try to reach the $40 million range where it starts paying for itself. At roughly $20,000 to $25,000 a month in operating costs, you’re burning through runway while you build. If you can come in with even $5 to $10 million from friends and family or existing relationships, you give yourself time to actually market. Don’t rush to launch until you have a realistic path to seed capital. An empty fund sitting there doesn’t help anyone.

Where is product innovation heading: single stock ETFs, leverage, prediction markets?

Single stock and leveraged products keep growing and I don’t see that changing. These are trading tools, not long-term investments, but they serve a real purpose. Getting 2x exposure to a single stock used to mean dealing with margin, which is limited, complicated, and unavailable in retirement accounts. The ETF wrapper makes it clean and accessible. The SEC has held the line at 2x and recently asked firms with higher filings to pull them, so 3x or 4x products aren’t coming. But within that limit, wherever volatility moves, demand follows. AI has been the big theme. Energy feels like it could be next.

On broader innovation, prediction market ETFs have been filed by several firms and the industry is watching to see how the SEC responds. Beyond that, the more interesting space to us is income: single stocks with covered calls and combinations of leverage and options generating real yield. Options-based ETFs have already grown into a quarter-trillion-dollar segment in the US, and that’s only going to expand. We’re preparing to file something that pairs a 2x REIT with covered calls, offering leveraged real estate exposure plus options income. What’s fascinating from where we sit is that we don’t generate ideas. The market brings them to us. You’d be amazed how often ten different people call in the same week with the exact same concept. Right now it’s a SpaceX single-stock ETF. When that company goes public, there’s going to be a race to be first. Boutiques have a real edge here because a smaller manager calls us, we kick into gear, and our record from first conversation to launch is 100 days. Speed matters when you’re trying to be first.

For a boutique manager still on the fence: what’s the cost of waiting two or three more years?

The curve on ETF growth is up and there’s no sign of that changing. Every year you wait, there are more funds to compete with and your track record clock hasn’t started. If you wait three years, you’re six years away from your first Morningstar rating. That’s six years of being invisible to a big segment of the advisor market. A recent BBH survey found that 94% of respondents expect active ETFs to reach $10 trillion in assets within ten years, and PwC research shows over 90% of respondents expect significant retail interest in ETFs over the next two to three years. The managers who are building track records right now are going to be well positioned when that retail wave hits. The ones still thinking about it won’t be.

The 351 and conversion advantages are in full swing right now, but regulatory risk is real. Fidelity already stopped allowing 351 conversions and won’t move client assets into an ETF as part of a 351. We think that’s questionable from a legal standpoint, but it’s happening. The window for some of these tools may not be open forever.

And your competitors are already doing this. Every month you wait, a manager in your category is building a track record in the ETF wrapper while you’re still thinking about it. At some point the question isn’t whether to do it. It’s whether you did it early enough to matter.

Dan Sondhelm is the CEO of Sondhelm Partners. He works with boutique asset managers to help them grow AUM, stand out in crowded markets, and create more meaningful conversations with investors.

If you’re weighing whether the ETF wrapper is right for your firm, schedule a complimentary strategy session to talk through your situation and what a path forward could look like.