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The SEC has approved Dimensional Fund Advisors’ plan to add ETF share classes to 13 mutual funds, opening the door for industrywide adoption of the long-awaited model.

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A New Era for Fund Investors

In a major shift that could reshape how U.S. investors access low-cost portfolios, the Securities and Exchange Commission has signed off on Dimensional Fund Advisors’ proposal to introduce exchange-traded fund share classes on a group of its long-running mutual funds. The decision posted late Monday on the regulator’s website positions DFA to become the first new asset manager in more than 20 years to operate mutual funds and ETFs under the same umbrella.

The Long Road to a Breakthrough

For decades, ETF share classes were essentially a closed club. Vanguard had held the only patent allowing asset managers to pair traditional mutual fund structures with ETF equivalents. That patent expired in 2023, opening the door for competitors looking to tap into the explosive growth of the ETF market while keeping their established mutual fund lineups intact.

DFA moved quickly once the patent window opened, filing its application with the SEC and receiving preliminary approval in September. The firm requested authorization to add an ETF share class option to 13 of its existing mutual funds, an ambitious plan that signaled its intent to become one of the first major players to operate a hybrid mutual fund–ETF model beyond Vanguard.

According to a person familiar with the process, however, investors should not expect an immediate rollout across all 13 funds. The first wave of ETF share classes may not debut until early 2026, giving DFA time to phase in operational changes and prepare distribution channels.

A Green Light With Industrywide Implications

The SEC’s approval clears DFA’s last significant regulatory barrier and could pave the way for dozens of similar requests from rival asset managers. Many in the industry have been waiting for a second company to successfully replicate the Vanguard model before submitting their own applications.

By securing approval, DFA now stands at the forefront of what may become one of the biggest structural shifts in the investment industry since ETFs themselves went mainstream. The ability to offer both mutual fund and ETF share classes tied to the same portfolio allows asset managers to streamline operating costs, simplify fund administration, and potentially deliver more tax-efficient outcomes.

Expert Insight and Industry Reactions

Industry groups have been vocal in their support. Eric Pan, president and chair of the Investment Company Institute, welcomed the SEC’s decision, saying it would bring “meaningful benefits” to investors who remain in mutual fund structures but want the advantages typically associated with ETFs.

DFA leadership struck a similar tone. In a statement, co-CEO and co-CIO Gerard O’Reilly emphasized that the share-class model empowers investors to pick the strategy they want first, and then choose the most suitable vehicle, either mutual fund or ETF to access it. According to O’Reilly, the dual-structure approach gives investors more flexibility without forcing them to compromise on cost or accessibility.

Why the Approval Matters: Lower Costs, More Choices

Supporters of the initiative argue that ETF share classes could create a more level playing field for investors. With mutual funds and ETFs drawing from the same underlying assets, fund managers can pool operating expenses, potentially lowering costs across both product types. In addition, ETF share classes often carry tax advantages due to how ETF creation and redemption processes work something traditional mutual funds have struggled to match.

For investors, the model means:

• Lower overall expenses through shared operational efficiencies

• Improved tax outcomes compared to standalone mutual funds

• Broader access to established mutual fund strategies in the increasingly popular ETF format

• Streamlined fund families, reducing duplication and complexity

Industrywide Ripple Effects

DFA’s approval is widely seen as the catalyst that other asset managers have been waiting for. Firms across the industry have long been eager to offer ETF share classes but were blocked by Vanguard’s patent and hesitant to navigate the regulatory uncertainty alone.

Now, with DFA blazing the trail, the SEC may soon face a wave of applications. If similar approvals follow, the U.S. fund landscape could undergo a rapid transition toward hybrid funds, with traditional mutual fund companies using ETF share classes to retain existing clients while staying competitive in the fast-growing ETF market.

A Slow but Significant Rollout

Despite the historic approval, DFA’s implementation is expected to be gradual. The firm is likely to prioritize a small subset of the 13 funds initially approved, rolling out additional ETF share classes after assessing performance, demand, and operational scalability.

Still, even a phased approach marks a transformative step for investors and for an industry grappling with fee pressure, shifting preferences, and the accelerating migration from mutual funds to ETFs.

A Turning Point for Fund Innovation

The SEC’s decision doesn’t just give DFA a green light, it signals a broader evolution in the structure of U.S. investment products. As DFA prepares for its first ETF share-class launches potentially in 2026, the industry is preparing for a future where the lines between mutual funds and ETFs grow thinner, and investors gain more power to decide how they want to access the strategies they trust.

DFA’s move marks a significant milestone, and its ripple effects may shape fund design, competition, and investor expectations for years to come.

 

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