Self-Indexing: Conflict in the ETF Industry
Some ETF providers are going to great lengths to avoid index middlemen, which is causing concerns about a conflict of interest.
Most exchange-traded funds track indexes that are compiled by well-known industry names such as S&P and MSCI. These popular benchmark providers are able to charge relatively high fees to ETF providers for using and tracking their brand-name indexes, and then these costs are passed on to ETF investors.
But a shift is now going on in the industry that is seeing some ETF providers opting to create their own indexes to avoid paying fees to benchmark providers. This has been dubbed "self-indexing." In theory, cost savings from this move can then be passed on to investors in the form of lower annual ETF fees.