Brokerdealer.com blog update courtesy of extract from Investment News.
NextShares is a product that some want to eventually replace mutual funds. NextShares combine characteristics of mutual and exchange-traded funds. Like mutual funds, investors purchase shares in the fund at a price equal to the value of their underlying securities, plus a transaction fee. Like ETFs, they trade on exchanges and could benefit from the tax and other cost efficiencies associated with those products.
For years, backers of NextShares have been working to get approval and earlier this week, securities regulators finally granted approval. Now it will have to convince Brokerdealers and financial advisers that it is in their interest to supplant a product responsible for a healthy portion of their current revenue. The backers of NextShares want to cause the extinction of mutual funds, a lucrative product for broker-dealers.
“A lot of the firms we’ve spoken to are not really sure if they want to offer it at this stage,” said Bharat Sawhney of Gartland & Mellina Group, a consultant to broker-dealers on product offerings, strategy and technology platforms. “One of the bigger questions the firms have is if it will cannibalize their existing business.
Investors will need to be informed by broker-dealers of the unique qualities of the funds when they trade, and they will place exchange orders in a way that differs from stocks or ETFs.
In order to commit to NextShare and the changes it would bring, broker-dealers will need to see that consumers — both advisers and their clients — actually want the products, which are also known as exchange-traded managed funds. If they succeed in that regard, it wouldn’t be the first time client demand trumped the preferences of broker-dealers.
If you want a Brokerdealer that will commit to NextShare then now is the time let your Brokerdealer know this is what you want or find a Brokerdealer that will.