WEBVTT - Behind the First Mutual Fund-to-ETF Conversion 0:00:05.880 --> 0:00:08.039 Welcome to trillions. I'm Joel Webber and I'm Eric bel 0:00:08.080 --> 0:00:16.480 Tunis Eric. A couple of days ago, something happened that 0:00:16.520 --> 0:00:18.479 has never happened in the history of e t s. 0:00:18.640 --> 0:00:21.360 What was it? It was the first ever e t 0:00:21.520 --> 0:00:24.320 F to convert from a mutual fund into an e 0:00:24.440 --> 0:00:27.880 t F. So if you're in this fund, you would 0:00:27.880 --> 0:00:30.560 go to sleep h one night with mutual fund and 0:00:30.560 --> 0:00:33.199 wake up with an e t F sequel. And this 0:00:33.320 --> 0:00:36.479 was really monumental um and the first one to do 0:00:36.520 --> 0:00:39.680 it was Guinness Atkinson. But there are a couple others 0:00:39.680 --> 0:00:41.919 now lined up, including a massive one from d f 0:00:41.960 --> 0:00:44.280 A that could be about twenty six billion dollars, and 0:00:44.320 --> 0:00:46.680 it's got a lot of people buzzing. They there's a 0:00:46.720 --> 0:00:49.400 lot of talk about how this could start to really 0:00:49.440 --> 0:00:53.239 spread and really become the way as opposed to some 0:00:53.320 --> 0:00:56.800 other ways that the traditional active mutual funds sort of 0:00:57.240 --> 0:00:59.600 comes over and it takes advantage of the e t 0:00:59.760 --> 0:01:02.640 F ructure and the benefits that are in it, while 0:01:02.680 --> 0:01:05.080 being able to keep the track record and start with 0:01:05.120 --> 0:01:07.720 some assets as opposed to try to, you know, make 0:01:07.720 --> 0:01:10.360 it on their own in the terror dome as a newborn, 0:01:10.680 --> 0:01:14.559 which is hard so this will be a fascinating conversation 0:01:14.760 --> 0:01:20.039 and joining us from Guinness Atkinson Funds Jim Atkinson as 0:01:20.080 --> 0:01:24.399 well as his lawyer Alex Albert stat They were the 0:01:24.440 --> 0:01:27.640 two that helped bring these two e t f to market, 0:01:28.040 --> 0:01:30.880 Smart E t F S Dividend Builder with the ticker 0:01:30.959 --> 0:01:33.920 DIVS and the Smart E t F S Asia Pacific 0:01:33.920 --> 0:01:37.760 Dividend Builder the ticker A d I V, as well 0:01:37.800 --> 0:01:41.080 as at Bloomberg News Claire Valentine who wrote that story 0:01:41.440 --> 0:01:47.840 in March, this time on Brilliance converting from a mutual 0:01:47.880 --> 0:01:54.120 fund to an TF. Jim, Alex, Welcome to Trillians, Thanks 0:01:54.120 --> 0:01:58.040 so much for joining us, Thank you for having so 0:01:58.240 --> 0:02:01.720 this just happened in March. How long ago did you 0:02:01.760 --> 0:02:04.800 start dreaming about leaving the mutual fund world for the 0:02:04.800 --> 0:02:10.760 E t F world? Uh more than two years ago. Um, 0:02:10.840 --> 0:02:12.320 maybe three or four or five years ago. But we 0:02:12.360 --> 0:02:15.400 started in earnest on this project, I think about two 0:02:15.440 --> 0:02:21.480 years ago. And what was the attraction? Well, we've been 0:02:21.480 --> 0:02:23.400 in the mutual fund business for a long time. We 0:02:23.480 --> 0:02:26.320 have some great funds, and we're noticing that the E 0:02:26.400 --> 0:02:29.160 t f s are attracting all the assets. And you 0:02:29.200 --> 0:02:33.080 look at the flows. You notice that UM mutual fund 0:02:33.080 --> 0:02:37.200 flows have been persistently negative and E t F flows 0:02:37.200 --> 0:02:41.680 have been persistently positive, and you look around and you say, well, 0:02:41.680 --> 0:02:43.280 there's a reason for that, and that's because e t 0:02:43.440 --> 0:02:46.440 s are a better mouse trap. And once you conclude that, 0:02:46.680 --> 0:02:49.200 you start to say to yourself, I think we need 0:02:49.240 --> 0:02:50.919 to be in the e t F space, not the 0:02:51.000 --> 0:02:54.600 mutual fund space. But we've got some great funds. How 0:02:54.639 --> 0:02:58.440 do we convert these into E t F s? Uh 0:02:58.480 --> 0:03:00.600 and then And it was a little bit seuraging it first, 0:03:00.600 --> 0:03:02.400 because I've never been done before and there were a 0:03:02.440 --> 0:03:05.600 lot of obstacles, But I talked to Alex at length 0:03:05.600 --> 0:03:09.680 about it, and uh, we just decided to go for it. 0:03:09.840 --> 0:03:11.520 And we had a few phone calls with the SEC, 0:03:11.720 --> 0:03:14.639 and we just pushed ahead, and we just kept pushing 0:03:14.639 --> 0:03:17.000 that rock up the hill. I want to ask about 0:03:17.400 --> 0:03:19.160 phone calls with the SEC, but I also want to 0:03:19.160 --> 0:03:22.239 bring my colleague Claire in uh and and clear I 0:03:22.240 --> 0:03:24.919 helped set the stage for us, like if they if 0:03:24.919 --> 0:03:27.799 they were the first ones, how many more conversions are 0:03:27.800 --> 0:03:31.360 we likely to see in the days slash week slash 0:03:31.440 --> 0:03:34.760 months ahead. Well, the big one that we know is 0:03:34.800 --> 0:03:38.880 coming up is Dimensional Fund Advisors UM. They're conferred converting 0:03:39.000 --> 0:03:42.480 quite a few of their mutual funds. That's going to 0:03:42.600 --> 0:03:44.960 make them, right out of the gate a really big 0:03:45.400 --> 0:03:47.480 E t F issue where they've launched a couple of 0:03:47.520 --> 0:03:51.760 their own E t F s separately, but with these conversions, 0:03:51.840 --> 0:03:55.040 that's going to UM make them one of the largest 0:03:55.040 --> 0:03:59.000 et F issue. Where's just from that and UM, outside 0:03:59.000 --> 0:04:02.200 of just that, we've seen a couple of other smaller 0:04:02.240 --> 0:04:05.280 players file to convert their funds. UM one is a 0:04:05.360 --> 0:04:08.880 cannabis fund. So it's an interesting trend and I think 0:04:08.880 --> 0:04:12.320 we're gonna see it more and more. And what stood 0:04:12.320 --> 0:04:16.240 out to you about the Atkinson one, Like, what was 0:04:16.279 --> 0:04:20.640 significant to you about it other than being first? Being first? Definitely, 0:04:20.760 --> 0:04:25.040 And I remember last year hearing about this and just 0:04:25.120 --> 0:04:28.400 in the middle of such a crazy pandemic year. I 0:04:28.480 --> 0:04:34.119 just remember UM looking at this and having observed how 0:04:34.200 --> 0:04:36.920 much money mutual funds have been losing and how much 0:04:36.960 --> 0:04:40.479 money ETFs have been gaining. I remember my first thought 0:04:40.560 --> 0:04:43.760 was like, WHOA is this possible? This is a game changer. 0:04:44.560 --> 0:04:48.159 So it's it's a really interesting trend, I think, And 0:04:48.240 --> 0:04:51.560 just the fact that it's possible is is pretty notable. 0:04:53.600 --> 0:04:57.560 So Jim, I I curious about this idea of how 0:04:57.600 --> 0:05:00.279 to do it because when we first started talking about 0:05:00.279 --> 0:05:04.440 conversions um I think it was the guy from um 0:05:04.800 --> 0:05:08.360 UH Presidian who brought up conversions on our podcast about 0:05:08.360 --> 0:05:09.960 a year and a half ago, and he said, some 0:05:10.040 --> 0:05:12.120 lawyers are talking about it. I put this out on Twitter. 0:05:12.600 --> 0:05:14.840 Some people replied, well, I don't know if this can 0:05:14.839 --> 0:05:18.320 ever happen because people need brokerage accounts all of a sudden, 0:05:18.600 --> 0:05:20.000 and it's tough to do that. What if it's in 0:05:20.040 --> 0:05:22.560 a four one K plan? How did you work out 0:05:22.640 --> 0:05:28.840 those kinks? Well, the biggest kink was the direct shareholders. 0:05:28.880 --> 0:05:32.120 So most shareholders nowadays by their new tool funds through 0:05:32.120 --> 0:05:36.280 a brokerage firm, but there's still some people and the 0:05:36.360 --> 0:05:40.760 legacy shareholders that hold their shares direct. And you're correct, 0:05:41.320 --> 0:05:44.520 the traditional transfer agent system doesn't permit the holding of 0:05:44.520 --> 0:05:47.960 what what is essentially an equity security from an operational standpoint. 0:05:48.680 --> 0:05:50.880 Uh and And we had to do a little research 0:05:50.960 --> 0:05:53.320 to find the answer to this. But we we came 0:05:53.360 --> 0:05:56.520 across a firm called American Stock Transfer and there are 0:05:56.520 --> 0:06:02.000 a corporate transfer agency. So the way worked was as 0:06:02.000 --> 0:06:04.000 we got close to the conversion, we reached out to 0:06:04.000 --> 0:06:06.080 the shareholders who were direct and we said to them, 0:06:06.200 --> 0:06:09.000 we'd like you to transfer your shares to a brokerage 0:06:09.000 --> 0:06:13.000 firm UH or exchange into another one of our funds. 0:06:13.480 --> 0:06:16.680 And our least preferred option was for them to redeem UH. 0:06:16.680 --> 0:06:18.880 And most clients came back and said, we want to 0:06:19.880 --> 0:06:23.040 transfer and and by the way, that is a whole 0:06:23.040 --> 0:06:25.200 other process we can talk about later. But we knew 0:06:25.240 --> 0:06:27.040 we weren't going to get a hundred percent of our 0:06:27.080 --> 0:06:31.880 shareholders that were direct to transfer, so we arranged for 0:06:31.960 --> 0:06:34.280 American Stock Transferred to step in and fill the gap. 0:06:34.720 --> 0:06:38.520 So any shareholder that that was on our records as 0:06:38.520 --> 0:06:42.200 a direct shareholder on the march in these two funds 0:06:42.200 --> 0:06:45.000 got transferred over to American Stock Transfer and it's our 0:06:45.000 --> 0:06:47.400 plan to get them to move off of there into 0:06:47.440 --> 0:06:50.920 a brokerage account eventually. UM. That was sort of a 0:06:51.000 --> 0:06:53.000 key breakthrough we had to come across, because that was 0:06:53.040 --> 0:06:57.239 the operational snag that we kept bumping up against. Alex, 0:06:57.279 --> 0:06:59.520 I want to bring you in here. Did did the 0:06:59.560 --> 0:07:03.719 converse station between Jim and the sec Did that start 0:07:03.720 --> 0:07:07.000 before you or or once you were part of the team. 0:07:07.360 --> 0:07:10.120 Now that was. I mean, Jim and I planned this 0:07:10.200 --> 0:07:13.040 structure out together. We've talked about it for a few years. 0:07:13.560 --> 0:07:16.480 We've researched a lot of bits and pieces of different 0:07:16.480 --> 0:07:20.600 transactions involving mutual funds, UM and closed down funds in 0:07:20.640 --> 0:07:23.120 the past, and we sort of put all those elements 0:07:23.160 --> 0:07:26.120 together and then we did what anybody can do, which 0:07:26.200 --> 0:07:29.320 is you reach out to the SEC. You have a conversation, 0:07:29.800 --> 0:07:32.520 You explain to them what your idea, your concept is. 0:07:33.000 --> 0:07:36.640 You show them why it fits within the existing regulatory 0:07:36.720 --> 0:07:40.680 scheme that they are comfortable with, and sometimes they have questions. 0:07:40.800 --> 0:07:43.160 You respond to those questions, and eventually you get to 0:07:43.200 --> 0:07:47.120 the point where you move forward with your disclosure filings, 0:07:47.440 --> 0:07:51.440 which is what we did. So these aren't billable hours, um, 0:07:51.600 --> 0:07:57.680 so I want to ask, um, you know now doubt now, 0:07:58.680 --> 0:08:02.680 not exactly, but not not not a billable for me 0:08:02.800 --> 0:08:04.760 right now at least. So so as long as I 0:08:04.800 --> 0:08:07.119 have that advantage, I just want to ask, you know, what, 0:08:07.120 --> 0:08:09.800 what did you find surprising in that conversation with the 0:08:09.880 --> 0:08:13.240 SEC and throughout this process. Well, I mean the first 0:08:13.240 --> 0:08:16.800 surprise was, um, we thought it was gonna be We 0:08:16.840 --> 0:08:18.360 thought we were going to have to do a proxy 0:08:18.480 --> 0:08:22.240 to get shareholder approval. UM. There's a special rule that 0:08:22.280 --> 0:08:25.880 applies to mutual funds. When you're merging two mutual funds 0:08:25.880 --> 0:08:28.800 that are managed by the same advisor, you don't always 0:08:28.840 --> 0:08:32.720 need to have a proxy. Proxy is a very uh 0:08:32.880 --> 0:08:37.760 time consuming and somewhat expensive process for mutual funds because 0:08:37.800 --> 0:08:41.240 of the way funds are distributed. UM, it's extremely difficult 0:08:41.280 --> 0:08:44.959 to get those proxy statements out and out to all 0:08:45.000 --> 0:08:47.920 the shareholders and achieve your first shift to achieve acorum, 0:08:47.960 --> 0:08:49.760 and then you have to get the approval vote. So 0:08:49.800 --> 0:08:52.600 we were pleased to find out we didn't need a proxy. 0:08:52.679 --> 0:08:55.600 But the other thing that surprised me is some number 0:08:55.600 --> 0:08:58.520 of years ago, there were other fun complexes that tried 0:08:58.520 --> 0:09:02.080 to go down this path and there was actually a 0:09:02.080 --> 0:09:05.560 denial letter out there. And I thought that from that 0:09:05.640 --> 0:09:07.800 two thousand twelve denial letter we were going to have 0:09:07.880 --> 0:09:10.160 a bigger problem, and we really didn't. I think that 0:09:10.640 --> 0:09:14.040 the industry has evolved. E t F obviously have grown 0:09:14.080 --> 0:09:17.440 significantly since that time frame. And then also we had 0:09:17.440 --> 0:09:20.839 the benefit of the SEC taking a deeper look at 0:09:20.920 --> 0:09:24.520 how E t F operate, and that came out of 0:09:24.559 --> 0:09:27.800 the E t F rule. So that was obviously a 0:09:27.920 --> 0:09:31.120 huge piece that. Um, you know, we've probably made them 0:09:31.120 --> 0:09:35.720 more favorably inclined to this idea. I'm interested to just 0:09:36.120 --> 0:09:40.199 in talking with your shareholders, was there any pushback? I mean, 0:09:40.240 --> 0:09:45.719 did you get any concerns raised? How did that go? Um? No, 0:09:45.760 --> 0:09:48.920 that's a great question. It well is the answer that question. 0:09:48.960 --> 0:09:51.120 So a couple of things. First of all, when we 0:09:51.160 --> 0:09:54.680 first started thinking about this, I reached out to some 0:09:54.800 --> 0:09:57.880 of the advisors that have assets in these funds, and 0:09:59.240 --> 0:10:01.800 of them weren't fa are this? And then I'd occasionally 0:10:01.800 --> 0:10:04.719 get on the phone with a shareholder and I'd ask 0:10:04.800 --> 0:10:06.840 them the same question, how do you feel about this? 0:10:06.920 --> 0:10:10.040 What if we did this? Uh? And the answers were 0:10:10.120 --> 0:10:13.360 again a hundred percent positive. And then, of course, as 0:10:13.360 --> 0:10:15.440 we went through the process, I had the chance to 0:10:15.480 --> 0:10:20.160 speak to several dozen of our shareholders. Not one person 0:10:20.720 --> 0:10:24.800 expressed any reluctance to do this. That everybody thinks it's 0:10:24.800 --> 0:10:28.000 a great idea. Now, are there some out there that 0:10:28.040 --> 0:10:32.000 I didn't talk to? That's quite possible, But UM, let 0:10:32.000 --> 0:10:34.319 me pretty do this differently. We've had a number of 0:10:34.320 --> 0:10:37.640 advisors who are in our other funds and they're asking 0:10:37.679 --> 0:10:39.720 me when are we going to get to these other 0:10:39.720 --> 0:10:42.040 funds and convert them? This seems to be something that 0:10:42.120 --> 0:10:46.360 everybody is interested in, and we've had zero pushback. Now, 0:10:46.360 --> 0:10:48.440 there's been some operation elections we had to sort through, 0:10:48.800 --> 0:10:51.280 you know, on a couple of account levels. Um, but 0:10:51.280 --> 0:10:56.680 but those are those are all minor issues. Um, universal acceptance. 0:10:57.360 --> 0:10:59.839 I guess it is the answer. You all have already 0:11:00.000 --> 0:11:03.480 wild to convert a third fund. Are you going to 0:11:03.640 --> 0:11:06.240 do all the mutual funds? How far are you going 0:11:06.320 --> 0:11:11.240 with it? Uh, that's not fully determined, but I would say, 0:11:11.240 --> 0:11:13.040 don't be surprised if a year from now we have 0:11:13.240 --> 0:11:16.920 zero opening funds and were an entire e d F fan. Wow, yeah, 0:11:16.960 --> 0:11:20.439 it's UM, this is kind of new information. I know 0:11:20.559 --> 0:11:22.960 you did it, but to hear this sort of testimonial, 0:11:23.000 --> 0:11:27.480 it's very interesting. Now. I was with a manager yesterday, UM, 0:11:27.520 --> 0:11:32.040 and they're a mutual fund manager, and we were talking 0:11:32.080 --> 0:11:35.080 and they were saying that part of their problem was 0:11:35.120 --> 0:11:37.320 the four when K plans. Do you have any of 0:11:37.320 --> 0:11:40.400 your shares in four when K plans? Or or no, 0:11:43.000 --> 0:11:45.520 we do but not a lot. So you're right to 0:11:45.640 --> 0:11:48.199 raise this issue. That was one of the first things 0:11:48.280 --> 0:11:50.120 I looked at when we started thinking about this a 0:11:50.120 --> 0:11:54.120 few years back. We don't have a lot of penetration 0:11:54.120 --> 0:11:55.640 in the four oh one K market. We do have 0:11:55.760 --> 0:11:58.920 some and in fact, I will tell you the Guinness 0:11:58.960 --> 0:12:02.600 Atkinson four one K does invest in the dividend builder. 0:12:03.280 --> 0:12:06.320 And I called our administrator and said, hey, what happens 0:12:06.320 --> 0:12:08.800 if this becomes an e t F And their answer 0:12:08.960 --> 0:12:11.800 was not a problem. We can handle it. So we 0:12:11.920 --> 0:12:15.680 know that there are some retirement platforms that struggle with 0:12:15.760 --> 0:12:18.040 e t s or can't handle them, but that's not 0:12:18.080 --> 0:12:20.719 a universal problem. And there's nothing inherent about e t 0:12:20.920 --> 0:12:25.240 f s that keeps them out of retirement plans. So 0:12:25.480 --> 0:12:28.200 I guess if if somebody's out there listening and they're thinking, oh, 0:12:28.240 --> 0:12:30.320 every mathful fun, well, I mean, do you think this 0:12:30.360 --> 0:12:34.440 will be something that's targeted to to fun families that 0:12:34.640 --> 0:12:37.199 might not have that big of a four one K presence, 0:12:37.840 --> 0:12:39.600 or do you think it might spread and they'll just 0:12:39.640 --> 0:12:43.120 figure out how to solve that too. They'll figure out 0:12:43.120 --> 0:12:46.560 how to solve it. Yeah, there's there's um. There is 0:12:46.600 --> 0:12:50.160 nothing to my knowledge, there's nothing inherent about the operations 0:12:50.240 --> 0:12:52.640 or legal structure of four one case that's keeping them 0:12:52.679 --> 0:12:55.439 out of retirement plans. So there was some questions in 0:12:55.520 --> 0:12:57.480 forward k plans and the reason E t s aren't 0:12:57.679 --> 0:12:59.960 tend to be in the four one care well, besides 0:13:00.000 --> 0:13:02.120 the fact that you can get the institutional classes cheap, 0:13:02.360 --> 0:13:04.240 you don't need to interdate trade your four one k 0:13:04.520 --> 0:13:06.680 ets lose a lot of their superpowers when they go 0:13:06.760 --> 0:13:09.160 into the four one k that they have outside of it. 0:13:09.480 --> 0:13:12.959 That said, one of the reasons I, you know, would 0:13:13.040 --> 0:13:14.880 assume is that if you have an e t F 0:13:14.880 --> 0:13:18.200 in there and your drip drip drip buying, you're constantly 0:13:18.200 --> 0:13:20.559 paying a spread where you wouldn't pay that with the 0:13:20.640 --> 0:13:25.079 mutual fund. Yeah, well, I think I don't know that 0:13:25.080 --> 0:13:27.079 that's really that big of an issue there. There's I 0:13:27.160 --> 0:13:29.760 refer to those as carriage costs. So when you buy 0:13:29.760 --> 0:13:33.400 a mutual fund, the carriage costs go to the entire fund. 0:13:33.480 --> 0:13:35.480 That is to say, the bid ESTs you put money 0:13:35.480 --> 0:13:37.680 to the neutral fund, the mutual fund has to deployed that. 0:13:38.320 --> 0:13:41.760 They're paying commissions, they're paying custody charges, they're paying the 0:13:41.760 --> 0:13:45.360 bidst spread and everything they're buying. Those carriage costs, which 0:13:45.640 --> 0:13:48.679 rightfully belong to the person coming in and being shared 0:13:48.720 --> 0:13:50.760 by everybody in the fund. There's one of the benefits 0:13:50.800 --> 0:13:53.600 of ets. So the fact that the carriage cost is 0:13:53.640 --> 0:13:55.720 more visible in E t F doesn't mean it's being 0:13:55.760 --> 0:13:58.440 a something the mutual fund. To your point about the 0:13:58.520 --> 0:14:02.640 drip one the sort of psychological problems about e t 0:14:02.800 --> 0:14:06.200 s versus mutual funds. Mutual funds are bought in dollars 0:14:06.320 --> 0:14:08.840 and e t s are bought in shares. But that's 0:14:08.840 --> 0:14:11.440 not an impediment that can't be overcome. Yes, so I, 0:14:11.440 --> 0:14:16.120 if I can summarize you, mutual funds are internalizing those costs. 0:14:16.120 --> 0:14:18.040 The e t F it's externalized, but you're paying it 0:14:18.120 --> 0:14:21.640 either way. Okay, understood, So that's interesting. Um, that really 0:14:22.800 --> 0:14:25.720 makes the world much bigger that could do this because 0:14:25.760 --> 0:14:29.000 we had said, well, it's probably gonna be targeted. But 0:14:29.000 --> 0:14:31.760 but then again we people were pretty barossed that anybody 0:14:31.760 --> 0:14:33.440 would do it, And now you've got five or six 0:14:33.480 --> 0:14:43.800 lined up. Um. Anyway, interesting, So, Jim, if if there 0:14:43.800 --> 0:14:48.520 are one mutual funds out there, arbitrary picking a number, 0:14:49.200 --> 0:14:54.720 how many of those could you see doing what you've did? Um, well, 0:14:54.760 --> 0:14:56.960 if there are, you a hundred. But let's let's talk 0:14:57.000 --> 0:14:59.280 about what are some of the impediments for other people 0:14:59.280 --> 0:15:02.400 doing it. So first of all, I should say that 0:15:02.400 --> 0:15:04.800 the project that we just went through was the biggest 0:15:04.800 --> 0:15:07.800 project of my career, and that's because the level of 0:15:07.840 --> 0:15:11.480 detail that has to be dealt with when with this 0:15:11.520 --> 0:15:14.640 conversion isn't just affecting part of the business. It affects 0:15:14.680 --> 0:15:20.280 our entire business, from asset management, portfolio construction, trading compliance, 0:15:20.320 --> 0:15:25.640 shareholder communications. Every every single one of our service providers 0:15:25.640 --> 0:15:27.320 for mutual fund was involved. The broker do you know 0:15:27.360 --> 0:15:30.720 can news and the level of detail was enormous. We 0:15:30.840 --> 0:15:34.400 did two funds. Now, imagine if you're a mutual fund 0:15:34.400 --> 0:15:37.000 company with a hundred and fifty funds and seven share 0:15:37.040 --> 0:15:42.000 classes each. That is an enormous project. And when you 0:15:42.040 --> 0:15:44.320 start talking about all of these share classes, and many 0:15:44.360 --> 0:15:47.280 of the share classes are four different types of retirement plans, 0:15:47.760 --> 0:15:50.040 they might decide just to leave them as they are 0:15:50.120 --> 0:15:55.040 because it does work. But for everybody else, I think 0:15:55.080 --> 0:15:56.760 you're gonna decide that the e t F is a 0:15:56.760 --> 0:16:00.840 better mouse trap. And yes, it's a big object, but 0:16:00.920 --> 0:16:02.960 it's a project worth doing both for your business and 0:16:02.960 --> 0:16:06.280 fear shareholders. So could it be a hundred yes, might 0:16:06.280 --> 0:16:09.760 it be eight? Could be eight. There's some other issues 0:16:09.800 --> 0:16:12.040 to some funds don't really work well as an e 0:16:12.080 --> 0:16:14.480 t F. You can need to have a liquid pool 0:16:14.520 --> 0:16:18.840 of investments otherwise the arbitrage mechanism doesn't work UM, and 0:16:18.880 --> 0:16:23.240 the create process actually can I but it isna that 0:16:23.400 --> 0:16:25.800 all mutual funds become e t s and that might 0:16:25.840 --> 0:16:28.400 take a decade. So in the small cap area, you're 0:16:28.400 --> 0:16:30.560 saying it wouldn't be if you have a decent sized 0:16:30.600 --> 0:16:33.400 small cap converting that to an e t F, then 0:16:33.440 --> 0:16:35.440 you get into this whole debate they're having with Cathy 0:16:35.440 --> 0:16:38.160 Wood right now and ARC, which is you're too big 0:16:38.280 --> 0:16:40.040 to own these small stocks. You're going to push them 0:16:40.040 --> 0:16:42.520 around and the arbitrage band would widen and it just 0:16:42.560 --> 0:16:45.480 wouldn't really make sense. Whereas in a mutual fund you 0:16:45.480 --> 0:16:48.160 can close to close it if you need it. If 0:16:48.160 --> 0:16:50.400 you're a small cap fund, you get too big and 0:16:50.440 --> 0:16:55.240 you have capacity issues, you can just close the fund. Yeah, okay, Gus. 0:16:55.320 --> 0:16:58.840 My question too, is now that this has happened, UM, 0:16:58.920 --> 0:17:02.080 does this sort of pave the way for more or 0:17:02.120 --> 0:17:04.040 as more people do it, does it get easier for 0:17:04.080 --> 0:17:06.440 the next person to do it? Or is it more 0:17:06.720 --> 0:17:12.399 just a very individualized kind of process. Um. Yeah, it 0:17:12.480 --> 0:17:15.399 definitely is gonna pay. It's paving the way for people 0:17:15.440 --> 0:17:19.800 to follow and Geinness Atkinson's paths here for sure. UM, 0:17:19.840 --> 0:17:22.560 we know a lot of advisors who are obviously there 0:17:22.560 --> 0:17:24.879 are a number of advisors who have already filed documents 0:17:24.920 --> 0:17:27.600 indicating that they're going to pursue this. There are a 0:17:27.640 --> 0:17:30.040 number of other advisors who are talking about it, thinking 0:17:30.080 --> 0:17:33.439 about it UM and looking into it. And there are 0:17:33.480 --> 0:17:37.120 also people who are thinking about converting other types of 0:17:37.600 --> 0:17:42.520 either pooled vehicles or assets, types of institutional accounts into 0:17:42.560 --> 0:17:45.639 e t s and I think that's probably coming. And 0:17:45.680 --> 0:17:47.480 then I think there's a group of people who are 0:17:47.520 --> 0:17:52.439 looking at converting into non transparent or semi transparent e 0:17:52.520 --> 0:17:55.040 t s and I think that's probably you know, on 0:17:55.119 --> 0:17:58.080 the horizon, and I haven't seen any filings on those yet, 0:17:58.160 --> 0:18:03.320 but it's possible. It's interesting because the non transparent has 0:18:03.359 --> 0:18:05.960 been one route to go um A d f A 0:18:06.119 --> 0:18:10.120 did transparent active UM and this is sort of doing 0:18:10.119 --> 0:18:12.679 it where you bring it everything over. Jim, was was 0:18:12.720 --> 0:18:16.840 it attractive to you because you could launch e t 0:18:17.040 --> 0:18:18.960 f s that are cloni sho off your strategies and 0:18:19.000 --> 0:18:21.600 still have the tax benefits. But then you've got to 0:18:21.640 --> 0:18:24.800 start from scratch. Was it attractive to you the fact 0:18:24.840 --> 0:18:27.479 that you could bring over the assets as well as 0:18:27.520 --> 0:18:31.320 the track record and the shareholders. I mean, if if 0:18:31.359 --> 0:18:33.840 we had launched the clone for a shareholder to take 0:18:33.880 --> 0:18:36.119 advantage of the e t F, they'd have had to 0:18:36.160 --> 0:18:39.639 realize a taxable gain. So, but yes, we wanted to 0:18:39.640 --> 0:18:42.720 bring There were two bedrock principles from the very beginning. 0:18:42.840 --> 0:18:44.920 We wanted to be able to bring the track record over. 0:18:45.680 --> 0:18:47.560 We wanted it to be a non taxable event for 0:18:47.600 --> 0:18:51.239 our investors. Uh. And those were critical. Um. And then 0:18:51.400 --> 0:18:53.359 just from a business standpoint, I don't really want to 0:18:53.359 --> 0:18:58.440 be having, you know, two different structures and two different overheads. 0:18:58.440 --> 0:19:01.920 So so Jim, I have to ask, um, this being 0:19:02.000 --> 0:19:06.840 such a seminal event in in your career, uh, and 0:19:06.960 --> 0:19:09.520 you know it taking a what sounds to be like 0:19:09.600 --> 0:19:12.760 just a considerable amount of work. What was the point 0:19:12.760 --> 0:19:14.840 in the process that you were like, what have I 0:19:15.000 --> 0:19:19.359 gotten myself into? I'm like bashing my head against the wall. 0:19:19.440 --> 0:19:22.480 What what were what were those things that made you 0:19:22.520 --> 0:19:26.639 bash your head against the wall. Well, the thing that 0:19:26.680 --> 0:19:29.520 worried me throughout the process even even before we started 0:19:29.600 --> 0:19:32.280 was what am I going to learn? That I wished 0:19:32.320 --> 0:19:35.199 I knew now? And I was always worried about the 0:19:35.320 --> 0:19:39.919 unknowable unknown um. And in fact, we didn't really stumble 0:19:39.960 --> 0:19:42.280 across anything major. But I will tell you where I 0:19:42.320 --> 0:19:45.240 had my sort of moment of panic. We've been having 0:19:45.240 --> 0:19:47.600 phone calls with everybody in the operations. These are fall 0:19:47.880 --> 0:19:50.879 like thirty different people from from five or six different firms. 0:19:51.440 --> 0:19:53.639 These phone calls have been going on once a week 0:19:54.240 --> 0:19:57.119 and then later more than that, going back to like August. 0:19:58.119 --> 0:20:01.800 Just a tremendous amount of effort, all these details, and 0:20:01.880 --> 0:20:04.760 everything just kept looking like it was going fine. The 0:20:04.800 --> 0:20:08.359 workload kept going up. But we got about ten days 0:20:08.400 --> 0:20:12.879 out and I said to myself, what happens if something 0:20:12.920 --> 0:20:17.320 goes haywire here? What if this thing just completely fails? Um? 0:20:17.359 --> 0:20:19.080 And I knew it wasn't going to but that was 0:20:19.119 --> 0:20:21.120 sort of like my moment of panic. And I woke 0:20:21.200 --> 0:20:23.520 up the next day and we were about nine days out, 0:20:23.560 --> 0:20:24.960 and I said, you know what, this is going to 0:20:25.000 --> 0:20:29.639 go fine. And as it turned out, UM so. So 0:20:29.680 --> 0:20:32.720 the conversion happened on a Friday, last days a mutual 0:20:32.720 --> 0:20:34.879 phone was Friday first days in ETF was a Monday, 0:20:35.000 --> 0:20:37.879 so we had that weekend and I was thinking, my 0:20:37.880 --> 0:20:40.440 phone's gonna ring up the hook, I'll have problems all weekend. 0:20:41.200 --> 0:20:43.640 I got nothing. I had no phone calls over the weekend. 0:20:44.240 --> 0:20:46.480 We had a seven am call on Monday morning. At 0:20:46.560 --> 0:20:48.640 nine am call on Monday morning, just to check in 0:20:49.800 --> 0:20:51.720 all of this build up and all of this work. 0:20:52.160 --> 0:20:54.639 It was like the whole thing was a whimper at 0:20:54.640 --> 0:20:57.720 the very end. It must be like you're you're describing 0:20:57.760 --> 0:21:01.199 like what I would imagine carnation sounds like No, what 0:21:01.240 --> 0:21:04.879 are you's describing? Is y t K? Remember that was 0:21:04.920 --> 0:21:07.440 the whole faith? That's what There you go, Thank you, 0:21:07.640 --> 0:21:10.720 My work is done here, I'm going to happen. You're 0:21:10.760 --> 0:21:14.879 You're welcome. Yeah y t K. Comparison way better than reincarnation, 0:21:14.960 --> 0:21:19.000 but less weird too, less weird. I went to super 0:21:19.040 --> 0:21:21.760 Meta and you kept it real. So thank you for that. 0:21:22.080 --> 0:21:24.840 Um so so Jim. I have to ask, since since 0:21:24.880 --> 0:21:30.040 this happened, how many phone calls of of former peers 0:21:30.920 --> 0:21:33.600 UM in the Mutual Fun world have you been getting? 0:21:34.560 --> 0:21:42.440 It doesn't UM emails, UM phone calls. Uh yeah, it's 0:21:42.480 --> 0:21:44.440 surprising because you know you're sort of just working away, 0:21:44.440 --> 0:21:46.360 working away, and that you don't realize that so many 0:21:46.400 --> 0:21:48.680 people are watching. But a lot of people were in 0:21:48.720 --> 0:21:51.080 a lot of people have noticed. So I've been in 0:21:51.119 --> 0:21:52.560 touch with people I hadn't been in touch with for 0:21:52.600 --> 0:21:54.520 five or tenure. And and Alex, how about for you 0:21:54.600 --> 0:22:00.000 since you are the trailblazing lawyer that got this done. Yeah, 0:22:00.040 --> 0:22:03.159