SEC Grants Dimensional Approval to Launch ETF Share Classes
The U.S. Securities and Exchange Commission approved Dimensional Fund Advisors’ request to offer both exchange-traded fund and mutual fund share classes within the same fund structure, making Dimensional the second asset manager—Vanguard had long been the other—to have this capability.
The SEC’s order, issued on Monday, provides Dimensional with exemptions that allow open-end management investment companies to manage both ETF classes and mutual fund classes within the same fund structure. This makes Dimensional the first firm to implement this model for actively managed products.
The approval follows an application, originally filed in July 2023 and subsequently amended several times through September 2025. The agency stated after the most recent application that it intended to approve Dimensional’s fund structure, but the U.S. government shutdown delayed the official approval.
According to the SEC’s order, the exemptive relief covers sections of the Investment Company Act of 1940 necessary for standard ETF operations, as well as the relief required for a single fund to issue both ETF and mutual fund classes. The commission concluded that the terms of the arrangement were “reasonable and fair” and did not involve overreaching.
As when the SEC announced its intent to approve the fund structure, many within the investment industry praised the decision.
“Every asset manager is navigating the shift to ETFs while supporting a loyal mutual fund base, especially in retirement plans,” John Russo, national leader of public investment management at KPMG US, said in a statement. “This structure isn’t a one size fits all solution, but it is a strategic pathway [for asset managers] to access new distribution channels and modernize proven strategies for this growing market. The decisions firms make here will likely redefine the competitive landscape for active management over the next decade.”
The Investment Company Institute, which advocated for the approval of the dual share class fund structure and published a paper on the topic in October, also commended the decision.
Meanwhile, market infrastructure provider Depository Trust and Clearing Corp. issued a statement that, in the absence of an automated solution for ETF to mutual fund share class conversions, the dual share class model could introduce operational complexity and risk.
Similarly, Suzanne Cullinane, director of operations and distribution at the Investment Company Institute, recently told CIO that asset managers hope to utilize automated conversions, but they are not expected to be available in the market until the middle of 2026.
As such, the DTCC stated it will enhance its Fund/SERV mutual fund services platform, the industry solution for processing and settling mutual funds and other pooled investment transactions between fund companies and their distributors, to support automated mutual-fund-to-ETF-share-class conversions.
“Industry testing is on track to commence in Q1 2026 and is expected to launch in Q2 2026, subject to any necessary regulatory approvals,” a DTCC spokesperson said in a statement. “This new capability aims to meet the market demand by supporting faster processing, reduce manual work and streamline operations.”
Dimensional Welcomes Approval
Dimensional issued a statement that the SEC’s decision will allow the firm to deliver expanded flexibility and efficiency to investors. The firm emphasized that its systematic active ETFs, launched beginning in 2020, have increasingly used custom creation and redemption baskets to improve tax efficiency and lower transaction costs. With the new share-class structure, these benefits can also be extended to mutual fund shareholders.
Dimensional highlighted that ETF share classes may benefit from the steady cash flows of mutual fund investors. Meanwhile, ETF share classes themselves may benefit from the scale, diversification and securities-lending potential of Dimensional’s established mutual fund lineup.
“The joining of mutual funds and ETFs through share classes represents a significant enhancement in how millions of Americans can access financial markets in the future,” said Gerard O’Reilly, Dimensional’s co-CEO and co-CIO, in a statement.
Shortly after the SEC indicated its intent to approve the dual-share-class fund structure, Dimensional filed an application on October 9 requesting permission to introduce ETF share classes for 13 U.S. equity mutual funds.
Experts have praised these fund structures as long overdue and beneficial, particularly for their potential tax efficiency. However, many had previously told CIO that they did not anticipate immediate adoption of these new fund structures.
Kip Meadows, CEO of Nottingham, for one, recently launched ETF Lighthouse, a fintech platform that helps managers handle the mechanics of adding ETF share classes. Nottingham provides structural and operational solutions for mutual funds, private funds and other pooled investment vehicles.
Meadows says the dual–fund structure effectively addresses a common challenge faced by investment advisers dealing with fund sponsors. In the retirement plan market, he says, mutual funds are the preferred choice for managing defined contribution plan contributions, primarily because mutual funds allow for ownership of fractional shares, which is crucial for companies, like his own, that process payroll bi-monthly.
For example, if someone is contributing 5% of their pay to their retirement plan, they might end up allocating $12.13 to a specific bond investment. That precise allocation, he says, is not possible with ETFs, which require whole shares to be purchased. In contrast, mutual funds can accommodate such exact contributions, making them structurally more suitable for retirement plans.
Though “revolutionary” and “fundamentally transforming how the fund industry operates,” Meadows says he expects demand to build over time.
“Demand will be a little bit slow at first, and it’ll accelerate quickly,” he says. “Then everybody will say, ‘Wait a minute. I need to get on board too.’”