The approval of dual share classes may be one of the fund world’s biggest changes in decades, but it’s facing an age-old problem: square peg meets round hole.

The settlement processes that underpin the fund structures weren’t designed to work together and were established years apart, which complicates things for intermediaries handling trades of mutual fund shares for ETFs. “The best analogy is that scene in Apollo 13 where they’re trying to get the carbon dioxide out of the spacecraft,” said Kip Meadows, CEO of fund service firm Nottingham, pointing to modules made by different manufacturers.

Like ETF and mutual fund settlement processes, “the two systems don’t fit together because they were built at different times,” he said. Fortunately, NASA engineers helped the three astronauts improvise a connector for the cylindrical carbon dioxide scrubbers from the lunar module and the cubic ones on the command module. And, let’s be real: The consequences in that situation were much more important than dual share classes.

Just Around the Corner

The biggest difference is mutual funds being held in fractional shares versus ETFs’ whole ones. Now that the federal government shutdown has ended and the Securities and Exchange Commission is back to work, dual share classes were approved for Dimensional Fund Advisors this week, and other companies that mostly replicated DFA’s application per the regulator’s requests, will likely soon follow. That means some mutual funds will have ETF share classes added to them, and vice versa, and investors will exchange shares of one for the other. “You’re always going to have an amount left over,” Meadows said of mutual fund assets being moved to ETF shares. “You have to know what the shareholder wants to do with that fractional share.”

Ahead of dual share classes, intermediaries have some things to consider, attorneys at law firm Morgan Lewis recently wrote:

• Dual share classes may affect investor suitability and advisors’ fiduciary responsibilities or obligations under Regulation Best Interest. Improving disclosure and point-of-sale practices will help limit liability in instances of customer complaints or from regulatory examinations.
• They should also think about how this will affect compensation, such as from revenue sharing or 12b-1 payments, and how to add dual share class funds onto their product lineups.

Save It for Later: More than 80 firms have filed with the SEC for dual share classes, though few will add them immediately after getting approval. Operationally, many won’t be ready, and there will likely be distribution hurdles with broker-dealers that aren’t eager to add ETFs. Regarding how well-prepared firms are, “that would probably be 87 different answers,” Meadows said. “This [government] delay may have been a good thing, to be able to think through the business side.”

Wealth managers are stuffing their menus with more offerings than a Cheesecake Factory, but clients aren’t biting.

While advisory firms continue working to become one-stop shops, clients know what they like and are sticking to it, according to a recent Cerulli report. Advisors reported offering six out of the 11 major planning services — such as estate planning, tax preparation, insurance, elder care planning and more — but clients use fewer than three of these services, on average. The gap stems from the fact that advisors might not know to broach a topic like elder care with a financial planner, experts said. Making sure clients know about all the services available to them can also help advisors provide more value and ensure they have better investing outcomes.

“Clients don’t know what they’re not getting, and advisors are sticking with what they’re most comfortable with,” said Scott Smith, senior director of advice relationships at Cerulli. “They aren’t being proactively offered that by advisors: ‘I’m doing the thing I’m comfortable with. My clients are happy. Why would I risk it?’”

What A Client Wants

Another reason for the growing gap is firms’ fear of being replaceable. More and more advisory teams want to assign themselves the catchall label of comprehensive wealth management, Smith said, especially since the more services a client trusts an advisory team or firm to handle, the more likely they are to stay. This becomes especially important for long-term viability, he added, as younger clients are more likely to stick with a firm for decades, rather than switch later in life. “[Advisors are] looking at their tomorrow, or their next year, and their 100 clients aren’t going to get up and move because they aren’t giving tax optimization,” he said. “But for the firm with a longer horizon, these things will have an impact more so than [for] an individual advisor.”

According to the Cerulli report:

• 48% of clients received comprehensive financial planning last year, a figure expected to rise to 55% by next year.
• Retirement advice ranked the highest among services used by clients.

Partner Up. Smith estimates that about a quarter of current clients classify as “prospects,” meaning they might work with a bank or 401(k) provider but aren’t getting specialized advice. Prospects settling on a long-term financial planner are growing progressively younger, which has led to a proliferation of institutions buying up smaller entities, such as stock-plan administration platforms, to cater to future high earners.

“Firms are gobbling up those early-career wealth accumulation companies. If you’re a 28-year-old and just got stock credit … That’s going to be a rich person someday,” Smith said. “Bringing those people on as clients is a real challenge that, if you haven’t done it by age 50 … they’ve probably found a dance partner already.”

Bitcoin briefly fell below $90,000 yesterday, hitting its lowest level since February in a drastic drop from its record high above $126,000 just six weeks ago.

The dip has been deeper than some analysts expected. JPMorgan said last week that bitcoin’s fall would be stopped at $94,000, and investors would then buoy the coin to new all-time highs within the year. Nope.

Though bitcoin slightly rebounded yesterday, crypto’s immediate future is unclear as investors feel the FUD.

Fear, Uncertainty and Death Crosses

Bitcoin has entered “death cross” territory, meaning its 50-day moving average has fallen below its 200-day moving average. The dramatically named phenomenon illustrates some investors’ fears: Bitcoin spot ETF inflows have stalled in recent weeks, while corporate buyers have backed off aggressive buying. A Fear & Greed index for crypto on Monday hit its most fearful level since 2022.

Experts, however, consider a death cross a lagging indicator that isn’t an accurate predictor of the future. And a quick scan of crypto forums on Reddit shows long-term bitcoin investors replying to panicking posters with variations of, “First bull run? Buckle up.”

• Bitcoin has historically had a four-year cycle of highs and lows, previously peaking in 2013, 2017 and 2021. Do the math, and 2025 would be the next peak in that cycle. Some analysts say it has become a self-fulfilling prophecy, helping spook investors after the coin rose to new highs last month. There’s debate about whether the last peak was truly the end of the cycle, whether the current dip will remain relatively shallow before rebounding, and whether the four-year cycle is still relevant. (Strategy co-founder and crypto-evangelist Michael Saylor said the cycle is dead.)
• Bitcoin has fallen about 27% from its last peak, which is still short of a typical downturn. Crypto dropped 45% twice in 2022, and a crypto researcher told CoinDesk this is the third 30% correction since spot bitcoin ETFs were introduced in the US last year.

Hedge Trim: Pinning down the exact reason bitcoin’s in a slump now, from general economic fears to deleveraging and so on, is complicated and may be beside the point. Volatility isn’t uncommon in crypto, but it calls into question narratives about bitcoin being a hedge against the dollar and even digital gold. On the flip side, after bitcoin has historically fallen to lows, it has always eventually bounced back to new highs.