News
The ETF Share Class Rule Could Rewrite the Future of Fund Structures
PINE Advisor Solutions | 11 November 2025
The SEC’s recent notice of intent to grant exemptive relief allowing mutual funds to offer both traditional and ETF share classes within the same portfolio could reshape the industry—and it’s especially meaningful for smaller fund complexes.
For many smaller firms, launching a standalone ETF has long been out of reach. The cost of establishing a new trust, managing separate filings, and maintaining parallel operations can be prohibitive. By permitting ETFs as an additional share class of an existing mutual fund, the SEC is effectively lowering the barrier to entry. Firms can now share infrastructure, compliance programs, and operational resources under one umbrella, dramatically reducing expenses while expanding distribution reach.
This change comes at a critical time. Mutual funds have faced net outflows in nine of the past ten years, and nearly half of mutual fund assets are held in retirement accounts. That concentration highlights how dependent the industry remains on the retirement channel, with limited access to retail investors and financial-adviser platforms. Adding an ETF share class gives smaller firms a cost-efficient way to reach new investors and tap into the continued growth of ETFs, all while maintaining their mutual fund investor base.
The opportunity flows both ways. There are now more than 4,000 ETFs in the market, and many ETF issuers could use this structure to access the massive retirement market, where many plans still restrict ETF investments. By adding a mutual fund option, ETF providers could bring their strategies into 401(k), IRA, and other institutional platforms, unlocking a significant new source of long-term assets. While ETFs themselves cannot directly add a mutual fund share class. The only way for an ETF to achieve this structure would be to launch a mutual fund and merge the existing ETF into that fund as the surviving entity, effectively creating a single portfolio offering both share classes.
Until now, only large asset managers could afford to operate mirror mutual funds and ETFs. The SEC’s new approach levels the playing field, allowing smaller firms to compete in both markets through a single fund structure. Investors stand to benefit as well, gaining more choice, lower costs, and potentially greater tax efficiency within familiar products.
In essence, this development doesn’t just modernize fund structure—it democratizes it. The ability to offer ETF and mutual fund share classes within one fund could transform how investment products are built, distributed, and accessed. For smaller firms, it’s a long-awaited opportunity to participate fully in the ETF era without leaving their mutual fund roots behind.
For many smaller firms, launching a standalone ETF has long been out of reach. The cost of establishing a new trust, managing separate filings, and maintaining parallel operations can be prohibitive. By permitting ETFs as an additional share class of an existing mutual fund, the SEC is effectively lowering the barrier to entry. Firms can now share infrastructure, compliance programs, and operational resources under one umbrella, dramatically reducing expenses while expanding distribution reach.
This change comes at a critical time. Mutual funds have faced net outflows in nine of the past ten years, and nearly half of mutual fund assets are held in retirement accounts. That concentration highlights how dependent the industry remains on the retirement channel, with limited access to retail investors and financial-adviser platforms. Adding an ETF share class gives smaller firms a cost-efficient way to reach new investors and tap into the continued growth of ETFs, all while maintaining their mutual fund investor base.
The opportunity flows both ways. There are now more than 4,000 ETFs in the market, and many ETF issuers could use this structure to access the massive retirement market, where many plans still restrict ETF investments. By adding a mutual fund option, ETF providers could bring their strategies into 401(k), IRA, and other institutional platforms, unlocking a significant new source of long-term assets. While ETFs themselves cannot directly add a mutual fund share class. The only way for an ETF to achieve this structure would be to launch a mutual fund and merge the existing ETF into that fund as the surviving entity, effectively creating a single portfolio offering both share classes.
Until now, only large asset managers could afford to operate mirror mutual funds and ETFs. The SEC’s new approach levels the playing field, allowing smaller firms to compete in both markets through a single fund structure. Investors stand to benefit as well, gaining more choice, lower costs, and potentially greater tax efficiency within familiar products.
In essence, this development doesn’t just modernize fund structure—it democratizes it. The ability to offer ETF and mutual fund share classes within one fund could transform how investment products are built, distributed, and accessed. For smaller firms, it’s a long-awaited opportunity to participate fully in the ETF era without leaving their mutual fund roots behind.