From Yahoo Finance: 2025-05-21 17:14:00

A new study suggests that about $2.7 trillion in SMA holdings could benefit from converting to ETFs due to tax efficiency. The process poses challenges but is appealing for high net worth clients. White-labeling services assist with ETF launches. SMA transfers to ETFs could streamline operations and boost efficiency.

Experts caution that SMA to ETF conversions involve technical challenges and compliance rules. Despite the complexity, the process has generated significant demand. SMA clients must give formal permission for the conversion. Cerulli estimates $2.7 trillion in SMA assets could be converted. The process is seen as an exit valve for exhausted separate accounts.

SMA conversions to ETFs involve jumping over logistical hurdles and navigating regulatory factors. Clients must give formal permission, and firms must coordinate with custodians. Assets must align with fund prospectus and comply with regulations. The process is complicated and requires thorough coordination. SMA investors benefit from tax-free capital flow through the conversion.

The conversion of SMA assets to ETFs is expected to simplify operations and increase efficiency for RIAs. The process allows capital to flow freely without tax hits. Cerulli estimates $2.7 trillion in SMA assets could be converted. Further transfers may occur if the SEC approves the creation of ETF share classes in mutual funds. The process is seen as disruptive but beneficial for reducing operational complexity.

Read more: Trillions in SMA assets ripe for tax-friendly ETF ‘exit valve’