On November 17, 2025, the Securities and Exchange Commission (SEC) issued an exemptive order granting Dimensional Fund Advisors permission to operate a registered open-end investment company with both an exchange-traded fund (ETF) share class and one or more traditional mutual fund share classes within the same fund. This decision marks a potentially significant development in the evolution of investment fund structures. 

The order allows the fund to offer an ETF share class alongside conventional mutual fund share classes, addressing differences in shareholder rights and operational features typically restricted under Rule 18f-3 of the Investment Company Act. A key feature is an exchange mechanism, enabling shareholders in a mutual fund class to convert their holdings into ETF shares, subject to certain conditions. 

The SEC acknowledged potential conflicts arising from this hybrid structure, particularly concerning the allocation of transaction-related costs. ETFs primarily transact through in-kind creations and redemptions, while mutual fund shares typically transact in cash. To mitigate these risks, the exemptive relief mandates stringent governance and oversight measures. 

A critical requirement is that the fund’s board of directors, with a majority of independent directors, must determine that the multi-class structure benefits each share class and the fund as a whole, both before the ETF class launch and on an ongoing basis. The fund advisor must provide the board with initial and periodic reports assessing expected and actual benefits, costs, and potential conflicts between the ETF and mutual fund classes. Ongoing monitoring of specific metrics and periodic board reviews of the multi-class arrangement are also mandated. 

While this relief is currently limited to the applicant, it suggests the SEC’s ongoing interest in exploring alternative fund structures. These structures aim to provide investors with greater flexibility in accessing investment strategies, albeit with enhanced governance and disclosure safeguards. 

Implications for Investment Advisers and Broker-Dealers 

Although the exemptive relief is specific to Dimensional Fund Advisors, it signals a possible trend toward increased structural flexibility in registered fund offerings. 

Investment advisers should anticipate the potential emergence of similar hybrid ETF-mutual fund products. This development could impact product selection processes, trading mechanics, and the nature of client disclosures. Advisers will need to carefully evaluate these hybrid products and their suitability for various client profiles. 

Broker-dealers, especially those involved in distribution or platform approval, should closely monitor these developments. As the SEC continues to assess alternative fund structures under the Investment Company Act, broker-dealers must adapt their platforms and processes to accommodate these new offerings. This includes ensuring compliance with relevant regulations and providing adequate support to clients trading in these hybrid products.