Dozens of Issuers Win Dual Share Class Approval. Rolling Them Out Won’t Be as Easy

The SEC must be feeling like Oprah: You get a dual share class, and you get a dual share class!

The Securities and Exchange Commission approved dozens of requests last week, including from big industry names like Invesco, Gabelli Funds and First Trust. The approvals mark the latest tranche of firms to get the green light from the agency, which has been fast-tracking dual share classes since it first approved a request from Dimensional Fund Advisors in November. With many of the issuers that applied for the structure already approved, next up is implementation. But it’s easier said than done and could become a long process, meaning clients won’t have immediate access.

“There’s a few others that have filed for actual products so far, so we’ll see a handful of early adopters,” said Matt Barry, head of capital Markets at Touchstone Investments, which was granted exemptive relief to offer the structure. “But most issuers, I expect, will take a gradual approach.”

Spreading the Wealth

F/m Investments has already brought the dual share class structure to market in its TBIL product, an ETF that is now available as a mutual fund. But that situation is unique, Barry said, since F/m was launching a mutual fund share class of an ETF, and not the other way around. One major operational issue that remains is how to quickly exchange share classes. Historically, Vanguard (which, up until 2023, had a patent on the dual share class structure), exchanged the share class manually, since there isn’t currently an automated solution. “That’s really important because a lot of mutual fund shareholders might want to change their share class into an ETF, and that can’t happen on a large scale until the process is automated,” Barry said.

The SEC has been on a dual share class roll lately:

• Issuers that were just issued approval last week also include Hartford Mutual Funds, Impax Asset Management, Thrivent and Natixis Investment Managers.
• Dimensional Fund Advisors was the first issuer to get the green light in November.

Dual What Now? Whether advisors are going to take advantage of the new share class remains to be seen. More than half of advisors said they actually preferred stand-alone ETFs to ETF share classes, according to a recent FUSE Research survey. But the structure will gain popularity with time, Barry said. “It’s going to be a gradual transition,” he said. “But it’s going to be a game-changer [and] accelerate the shift from mutual fund assets to ETF assets.”