A New Approach to ETF Creation Is Changing How RIAs Manage Taxes for High Net Worth Clients

Recent developments in direct indexing, private market access, and tax efficient ETF creation point to a clear trend: RIAs are expanding the range of tools they use to meet client needs.

At AdvizorPro, we see these shifts early. Our platform surfaces patterns that reveal where advisor behavior is changing, from growing use of direct indexing to the rise of RIAs implementing Section 351 exchange structures to manage client diversification more efficiently.

The 351 exchange model is a growing and meaningful evolution, a tax aware solution gaining traction among sophisticated RIAs and ETF issuers. It allows investors to contribute appreciated securities into a newly formed ETF without realizing a taxable gain, creating a path for diversification that is both tax efficient and operationally streamlined.

What is a 351 Exchange

A 351 exchange allows investors to transfer property such as stocks, ETFs, or other securities into a new corporation, in this case an ETF, in exchange for shares without recognizing a gain or loss, provided certain diversification and control requirements are met.

To qualify, portfolios must generally:

• Avoid having any single position exceed 25 percent of total value
• Keep the top five holdings under 50 percent of total portfolio value
• Include at least 11 distinct securities to meet IRS diversification standards
• Pass a look through test for any ETFs included in the contribution

In practice, the 351 process enables investors to seed a new ETF using their appreciated assets, receiving ETF shares in return. It is a modern, tax aware bridge between traditional portfolio management and ETF structuring.

The Rise of 351 Exchange Programs

While the 351 provision has existed for decades, its application to ETF creation is relatively new. Over the past few years, several firms have begun operationalizing the concept, creating repeatable, compliant pathways for transitioning appreciated assets into ETF structures.

Cambria Investment Management is among the pioneers. Through its 351 ETF Exchange program, Cambria, in partnership with ETF Architect and U.S. Bank, has built a six week process that allows RIAs to contribute client portfolios directly into new ETFs. The model standardizes diversification checks, documentation, and custodian coordination, making the once complex exchange both accessible and scalable.

Programs like these are attracting a wave of innovative RIAs looking for creative ways to reduce tax drag, consolidate assets under management, and deliver sophisticated client solutions without institutional level overhead.

For a deeper look at how ETF strategies are evolving, explore our Q2 2025 ETF Trends Report.

Why RIAs Are Paying Attention

For RIAs, 351 exchanges represent a new tool in tax aware wealth management, helping clients diversify without realizing capital gains while elevating the advisor’s role as a strategic partner in after tax planning.

For advisors, the benefits include:

• Attracting high net worth clients hesitant to sell concentrated positions
• Offering institutional level tax strategies to individual investors
• Consolidating assets under management as clients migrate appreciated holdings into advisor managed ETFs
• Differentiating their practice with a forward thinking, tax smart solution

For clients, the advantages are equally compelling:

• Diversification without realizing capital gains
• Continued tax deferred compounding within an ETF structure
• Access to transparency, liquidity, and lower fees
• Simplified reporting once assets transition into ETFs

As advisors search for tools that balance performance, tax efficiency, and client retention, 351 exchanges are emerging as a practical, compliant, and scalable innovation.

How AdvizorPro Surfaces Trends Like 351 Exchange Adoption

The 351 model is an example of how AdvizorPro helps users uncover niche advisor behaviors and emerging investment trends inside the RIA channel.

Within our platform, you can:

• Filter and target RIAs participating in or facilitating 351 exchanges
• Identify advisors aligned with tax aware ETF creation, direct indexing, or custom indexing strategies
• Segment the market by behaviors such as firms offering structured notes, ESG customization, or alternative SMA exposure

This level of segmentation helps ETF issuers, custodians, and asset managers quickly find RIAs experimenting with innovative investment options before the broader market catches up.

To see how our technology delivers these insights in real time, visit our TrafficIQ product page.

Evolving the ETF Landscape

The 351 exchange is reshaping how advisors think about portfolio construction, taxation, and client service. What began as a niche tax strategy is fast becoming a differentiator for RIAs focused on innovation and efficiency.

At AdvizorPro, we are tracking this evolution continuously, tagging, classifying, and updating RIA datasets as these practices spread across the industry. Whether you are building ETF distribution strategy, developing RIA partnerships, or identifying product market fit in tax efficient investing, AdvizorPro gives you the intelligence edge to stay ahead.‍

Start your free trial and see how AdvizorPro empowers ETF issuers, asset managers, and fintech leaders to reach the right advisors faster and grow smarter.

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