Schweser page 32: “ETFs have a lower cost structure than mutual funds since they do not have shareholder accounting expenses.” What is meant by shareholder accounting expenses, and why do ETFs not have them whereas standard mutual funds do have them?
ETF trades like stocks between investors, so the dealers who create those stocks originally are not involved in the transactions. The shareholder accounting is done through the exchange (like any shares). In mutual funds, the investors are selling/buying them directly from the mutual fund firms, not directly with each others. The mutual fund firms have to keep track who the owners are and how many they own --> extra costs.
When you sell your shares of a mutual fund that you own, the fund actually has to sell a portion of its holdings. There is accounting required for these transactions. For an ETF, the shares are distributed through a specialist by making creation/redemption units. The specialists receive a portfolio of stocks held by the fund when the redemption units are exchanged. Effectively, capital gains are not realized by all the other ETF shareholders. If you want more detail, I’ll have to consult with a few of my friends. They are fund accountants.