Though Eaton Vance has met skepticism from brokerage firms, it has made money licensing the structure of its NextShares to asset managers, such as Gabelli Investors, which will use it to launch their own branded funds. Eaton expects within the next few weeks to announce three more firms signing up.
A Chicken And Egg Issue
Brokerage firms that want to offer these funds will have to change their trading systems to accommodate the new orders. In March, Nasdaq OMX Group, the company that runs the exchange on which the funds will be traded, provided brokerages with information on what steps they need to take to allow investors to trade the funds.
It is a bit of a "chicken and egg" issue for Eaton Vance because investors will not ask for the funds until they know about them, but they will not know about them unless brokers tell them, Faust said. Eaton Vance launched an ad campaign last week promoting NextShares, which includes ads in a number of trade and industry publications that will run through the fall.
"At this stage, there is limited awareness of the product and investors are not currently asking us to trade ETMFs when they become available" a Fidelity spokesman wrote in a e-mail to Reuters.
Eaton Vance said it will reach out to brokerage firms over the next several weeks and discuss offsetting some expenses for firms that are first-movers, Faust said.
He noted one brokerage firm has already told Eaton Vance that it would cost around $200,000 to sell the funds. "We don't think this is an overwhelming task for broker-dealers," Faust said.
Eaton Vance has not said how much of the technology costs it will bear and how much revenue share it will offer. "Those conversations will begin in the next several weeks," Faust said.