ETFs in Europe: Why Operating Model Change is the Real Barrier to Growth

Co-authored by Greg Comiskey, and Ben Pumfrett.

The European ETF market is booming. Assets under management (AUM) in European ETFs surged to $2.74 trillion by mid-2025, marking a 20.3% increase in just six months and continuing a 35-month streak of net inflows. Yet, despite this momentum, many asset managers remain underprepared for the operational demands of launching and scaling ETFs in Europe and the UK.  

At Citisoft, we recently ran a series of roundtables with ETF leaders across the region. These discussions revealed a consistent theme: the biggest barrier to ETF success isn’t product innovation or investor appetite, it’s the operating model.

The ETF Opportunity: Retail and Institutional Demand Converge 

Retail adoption is accelerating, particularly among Gen Z investors. Our roundtable participants highlighted that in Germany, the €10 monthly "Sparplan" investment scheme is driving ETF uptake among young savers. Across Europe, digital platforms and neo-brokers are making ETFs more accessible, while trusted brands are winning retail loyalty through fee transparency, access, and simplicity. 

Institutional investors, meanwhile, are increasingly turning to ETFs as essential, pooled components of an otherwise segregated mandate. Fixed income ETFs, in particular, are gaining traction for their liquidity and cost efficiency. In fact, ETFs are now seen as a core component of a diverse asset allocation strategy that is actively marketed to institutional clients. 

The ETF Dilemma: Infrastructure and Industry Misalignment 

These demands are putting pressures on firms to launch ETFs or at the very least explore ETF strategies. Yet the industry is struggling to keep pace, with operational readiness, platform capability, and market alignment emerging as major hurdles. Our roundtable participants consistently pointed to infrastructure gaps and outdated assumptions as key blockers to success. 

Infrastructure Is Lagging Behind

Many firms are struggling to adapt their infrastructure to support ETF launches. Our roundtable participants highlighted several recurring challenges in Europe: 

• Connectivity to Authorised Participants (APs): This remains the single biggest barrier to entry. Without robust tech infrastructure to support AP interaction, even well-designed products can fail.
• NAV Transparency and Portfolio Composition Files (PCFs): Unlike mutual funds, ETFs are under constant scrutiny from market makers. Any issues with NAV calculation or incomplete PCFs can unnerve APs and widen spreads.
• Platform Gaps: Surprisingly, even major investment platforms lack out-of-the-box ETF functionality. This leaves firms scrambling to retrofit systems or invest in bespoke solutions. 

Real-World Symptoms of Unpreparedness

Participants further raised examples of how even mature organisations are struggling to keep pace: 

• Operational Blind Spots: In some markets, administrators have been caught off-guard by the disallowance of fractional share dealing for ETFs, with legacy systems continuing to let fractional orders through the workflow. This is a key area of development for stakeholders, as the automating regular cash inflows to ETFs from savings and pension plans can only increase accessibility.
• Advisory Misalignment: Many UK IFAs still favour mutual funds over ETFs, often due to generational biases or outdated assumptions about investor preferences. This is particularly evident where advisors engage more with older clients than with younger, ETF-curious investors. 
• Inconsistent Fee Structures: Retail platforms often incentivise fund trading while applying fees to ETFs, creating friction for cost-sensitive investors and undermining ETF accessibility.

These symptoms highlight the need for firms to rethink not just their tech stack, but also their distribution models, client engagement strategies, and service provider relationships. 

Strategic Considerations: ETF Launch Models and Organisational Readiness

Choosing the right launch model is only part of the equation. Whether firms pursue white-labelling, proprietary issuance, or ETF share classes, each path comes with its own operational and strategic implications. Success depends on internal alignment, governance, and long-term commitment. 

White-Label Isn’t a Shortcut

White-labelled ETFs are often seen as a fast track to market, but the reality is more complex. While they can reduce time-to-launch, they still require significant integration work and long-term commitment. As one participant noted, the idea of a ten-week launch timeline is a myth; four-to-six months is more realistic.

Moreover, white-labelling can limit flexibility. Issuers may lose leverage over service providers and face challenges in transitioning to proprietary models later. No firm has yet successfully unwound a white-label arrangement without a full asset transfer and shareholder approval. 

ETF Share Classes May Not be the Silver Bullet 

The ETF share class model – where a mutual fund offers both ETF and traditional share classes – is gaining attention, especially in the US. The SEC is moving toward broader approval, with over 70 asset managers filing for exemptive relief. However, operational hurdles remain, and in Europe, ETF share classes still require full ETF infrastructure.

Our roundtable participants were explicit that firms need to be clear that ETF share classes are not the quick win many expect. They introduce operational complexity and require the same level of readiness as standalone ETFs. 

The Human Factor in Sales and Governance

Launching an ETF isn’t just a technical challenge, it’s a cultural one. During our discussions, participants suggested it is imperative for firms to: 

• Align Sales Incentives: Many sales teams are still inclined to push mutual funds. Without dedicated ETF champions and fair compensation models, new products struggle to gain traction.
• Improve Governance: A robust business case for ETF launches must include national market considerations, especially given the diversity within Europe.
• Educate Internally: There’s still a significant knowledge gap across sales, operations, and product teams. Service providers report spending most of their time on education. 

Key Considerations for ETF Success 

As firms look to enter or expand in the ETF space, several strategic and operational questions should be addressed: 

• Is the current operating model equipped to handle ETF-specific requirements like AP connectivity and daily NAV transparency?
• What is the right launch strategy – white-label, proprietary, or hybrid – and how scalable is it?
• How can the business align its distribution model to meet both institutional and retail demand?
• Do existing platforms and service providers within the operating model have ETF capabilities, or is change required?
• What level of change management and training is needed to operationalise ETFs across the organisation? 

These are both technical and strategic decisions that shape long-term competitiveness. Each question reflects a broader set of interdependencies that firms must navigate; from aligning internal governance and sales incentives, to ensuring the right infrastructure is in place to support transparency and scale.  

Making ETFs Operationally Viable in Europe

The firms that succeed in this space will be those that treat ETF readiness not as a bolt-on capability, but as a fundamental shift in how they operate, distribute, and evolve their investment products.

The ETF market in Europe and the UK is rich with opportunity, but success requires more than a good idea. It demands a rethinking of operations, governance, and culture. If you’re exploring ETF launches or scaling existing products, Citisoft can help you assess readiness, build a roadmap, and avoid costly missteps. Let’s talk about how to make your ETF strategy operationally viable and sustainable. Get in touch

External Sources:
“European ETFs see 20.3% growth in H1 2025” Funds Europe  
Citisoft ETF Roundtable Notes, July and October 2025