Dozens of asset managers await the SEC’s approval of dual share classes, but there’s a major obstacle to the success of ETFs they plan to launch: Broker-dealers.

It all comes down to compensation. Unlike retail mutual fund share classes, ETFs do not include sales charges and 12b-1 and sub-transfer agency fees that support brokers’ business models. Not surprisingly, asset managers report having a hard time getting their ETFs approved by broker-dealers. And absent any incentives and revenue-sharing agreements that could make ETFs less financially advantageous for investors, that will probably continue. Thus, the watershed approval of dual share classes expected soon by the Securities and Exchange Commission may not lead to the widespread adoption of ETFs that asset managers are hoping for, a report this week by Cerulli Associates suggests. An industrywide move toward the ETF share class threatens $15 billion to $30 billion in annual revenue for broker-dealers, according to that firm.

“If they have the expectation of revenue-sharing in an ETF share class, how do they then justify not seeking that on traditional ETFs? That would be so painful,” one executive at an asset manager told Cerulli.

Gotta Pay to Play

While it’s well known that asset managers pay revenue-sharing fees, the extent is not clearly disclosed by broker-dealers. For asset managers, it’s a necessity to ensure their products get shelf space. But a couple of powerful trends pose a threat to brokers’ business models, including the rising demand for ETFs and a shift in financial advice to fee-based compensation. “There is a long-term shift that is taking place here,” said Daniil Shapiro, director of product development at Cerulli and one of the authors of the recent report. Even so, “these [ETF share class] products are going to be hampered in the short term. It’s going to be very difficult for them to get distribution through intermediaries.”

Data from surveys of ETF-issuers by the firm support that assessment:

• 97% said broker-dealers are reluctant to approve ETFs for their platforms, with 54% calling it a significant challenge.
• 89% said supporting mutual fund and ETF share classes entails operational complexity.
• Allowing mutual fund investors to switch to ETF share classes when those become available “is an operational nightmare” that “nobody seems ready to manage,” one asset management executive told Cerulli.

Make It Rain: The firms queued up for dual share-class approval are mostly larger asset managers. And those companies may have to be selective about which strategies they consider for dual share classes. While the industry anticipated approval by the SEC in 2026, the commission’s focus on moving on dual share classes sooner is leaving some firms scrambling, Shapiro said. “We expect a slow rollout of these types of exposures,” he said. “It seems like a lot of market participants were caught off guard.”

Now, now, don’t worry.

Equity and bond markets slumped in April — as fears of a recession tied to sweeping US tariffs rose — and that shrank ETF flows to their lowest point in a year. US-listed ETFs attracted roughly $58 billion in assets last month, a 37% drop from March and their lowest tally since April 2024 with just $36.7 billion, according to Morningstar Direct. While those April figures appear somewhat gloomy at first, there may be a silver lining.

“ETF flows have been steady — 2024 was a big year and so far in 2025, we’ve got even more flows year-to-date,” said Brendan McCann, Morningstar analyst. “There’s a lot of volatility floating around in the market right now, but it’s not preventing people from continuing to invest in ETFs.”

Go With the Flow

Despite all major stock indexes being in the red year-to-date, US equity ETFs were still the most popular funds in April, experiencing $32 billion in inflows. And quite impressively, two-thirds, or $20 billion, of that was captured solely by Vanguard S&P 500 ETF (VOO). “Vanguard has a lot of funds with razor-thin fees, and investors are a lot more cost-conscious now,” McCann told Advisor Upside. Meanwhile, the $512 billion SPDR S&P 500 ETF Trust (SPY) raked in just $2 billion in inflows for the month of April, per Morningstar.

Unfortunately, other ETF segments weren’t so lucky.

• Bond ETF flows were tepid, bringing in just $10.2 billion altogether.
• Sector ETFs notched nearly $14 billion in outflows.
• Allocations ETFs, which contain a mix of stocks and bonds, saw $125 million in outflows.

Arrivederci, America. European funds have been gaining plenty of ground with investors. From the start of the year to the end of April, European ETFs attracted roughly $110 billion in inflows, compared with about $53 billion in the same period last year, according to Morningstar data.

“European market exposures have more attractive valuations than US markets,” said Matthew Bartolini, head of Americas ETF Research at State Street Global Advisors, adding that central banks in the region have a stronger impulse to ease fiscal policy than in the US — and fewer constraints.

Pick a stock, any stock. Ramp up the risk, and the potential reward.

The number of leveraged single-stock ETFs on the market has more than doubled in the first four months of the year, going from 42 to 87, data from Morningstar Direct show. And the trend may be accelerating — one of the emerging players in the space, Themes, last week filed initial prospectuses with the Securities and Exchange Commission for 15 such products. Those leveraged single-stock ETFs focus on a range of public companies including Airbnb, Costco, and Hims. The category has moved well beyond names like Tesla and Google.

“We absolutely intend to expand,” Themes Chief Revenue Officer Paul Marino said, adding that the firm wants to be the “full-stop shop for funds that are of interest to institutional and retail traders.” Earlier this year the company added ETFs focused on Adobe, Robinhood, and Palo Alto Networks.

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