How to answer client questions about ETF share classes

ETF share classes are on track to become one of the most significant developments in the fund industry, and advisors will be navigating their implications from day one. 

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The SEC’s approval allowing Dimensional Fund Advisors to introduce ETF share classes within a single fund structure — two wrappers over the same underlying strategy (a model pioneered by and until now exclusive to Vanguard) — signaled an important shift. The dozens of fund firms already queuing behind Dimensional for the agency’s green light make it clear that this strategy will not be limited to a handful of innovators. 

For advisors, the key question is not what this means for sponsors, but what it changes in client conversations, portfolio implementation and due diligence once these wrappers co-exist. 

Expanding fund menus without forcing trade-offs

The most visible change for advisors and their clients will be an expansion of share class options within familiar strategies. Rather than converting mutual funds into ETFs wholesale, most sponsors plan to add ETF share classes alongside existing mutual fund shares. 

This approach reflects a practical reality advisors know well: Mutual funds remain essential in retirement plans, while payroll contributions rely on fractional share purchases that ETFs cannot support.

READ MORE: How dual share classes could reshape the future of ETFs

Dual-wrapper structures allow advisors to recommend the same underlying strategy in different formats depending on account type and client needs. Retirement plan participants can continue using mutual fund shares, while taxable investors or advisory accounts may benefit from ETF features such as intraday liquidity and potential tax efficiency.

Suitability, planning and fiduciary analysis

Such flexibility introduces new planning considerations. When two wrappers exist for the same strategy, advisors will need to consider and document why one is more appropriate than the other for a given client. 

Cost structures, tax characteristics, trading behavior and liquidity needs may all factor into suitability and fiduciary analysis. And because the holdings are the same, advisors will need to explain that the difference is not which fund is better but which wrapper better fits the client’s situation.

In early stages, advisors should expect uneven platform support. Some custodians and broker-dealers may be slower to operationalize ETF share classes, which could influence which clients can access them and when. 

READ MORE: Easier said than done: Dual ETF, mutual fund share classes

Clearing the share class air

Clients will have practical questions about trading differences in share classes, including what happens when moving between them and why fractional shares sometimes remain behind. 

Advisors may find themselves explaining why a client can hold a mutual fund share class in a retirement account but can’t simply transfer those exact shares in a taxable account without creating residual balances or a taxable event.

Since mutual fund and ETF systems were built in different eras, they do not connect naturally. I often compare this to the scene in “Apollo 13” where the crew makes mismatched components work together to make the air in the spacecraft breathable. 

Advisors should anticipate client questions about timing, pricing and residual balances. While mutual funds process fractional shares and rely on a single daily NAV with processing through the FundServ settlement network, ETFs rely on whole shares and on market makers and authorized participants who operate throughout the trading day, settling like common stock trades. 

Fund structures working together at scale

Earlier mutual-fund-to-ETF conversions required transfer agents to manually determine how many ETF shares each investor should receive. Those calculations could take as long as 10 days and required careful handling of leftover fractional interests. 

The good news is the industry is building the plumbing needed to make these structures work at scale. DTCC is working on enhancing FundSERV to support automated share class conversions, with testing expected in mid-2026, an important step toward reducing manual work. 

Share classes represent a meaningful industry evolution that expands investor access. Advisors who understand the mechanics — and can explain them clearly — will be better positioned to guide clients through a change that will influence how funds are delivered and used for years to come.