Vanguard to Lose Exclusive ETF Structure Advantage

Core Insights - Vanguard Group is set to lose its competitive edge in the investment industry as rival asset managers prepare to adopt a similar structure that combines ETFs with mutual funds, a model that has benefited Vanguard for over two decades [1][2][9] Group 1: Industry Impact - The SEC's approval for Dimensional Fund Advisors to adopt the hybrid structure is expected to trigger a wave of new ETF launches and alter the tax and performance dynamics of many mutual funds [3][5] - Over 80 asset managers, including major firms like BlackRock, Fidelity, and T. Rowe Price, are seeking regulatory permission to implement this dual-share class structure, indicating significant industry enthusiasm [2][5][6] - The potential for mutual fund share classes of ETFs could facilitate their entry into 401(k) plans, which have traditionally been built around mutual funds [8] Group 2: Vanguard's Position - Vanguard, despite being the pioneer of the ETF-within-a-mutual-fund model, is also on the waitlist for approval to use this structure for active products, having previously only been permitted for passive funds [9][10] - The firm has emphasized the benefits of the multi-share class ETF structure for both mutual fund and ETF investors, indicating a desire to extend these advantages to active funds [9] Group 3: Challenges and Considerations - Technical challenges remain in implementing the new structure, and the transition will not happen overnight, as many firms have been waiting for regulatory approval for about two years [4][5] - Practical hurdles exist for firms planning to deploy dual share classes, including the need for a comprehensive ETF distribution plan and operational readiness [13][18] - Broker-dealer reluctance to approve or make share classes available on platforms is seen as a significant challenge for ETF issuers [17]