Fidelity’s recent decision to impose an annual fee on ETF issuers, or a $100 service fee on investors who buy shares of some ETFs on its platform, has angered the financial services industry. However, industry insiders say the decision is unlikely to change whether RIAs work with custodians.
Earlier this month, Fidelity announced a new policy that, starting in June, will charge fees for the purchase of ETFs offered by issuers that refuse to participate in the custodian’s “maintenance arrangement.” The maintenance arrangement will require the issuer to pay Fidelity an annual fee of 15% of its fund’s expense ratio.
The vast majority of ETF issuers agree to charge maintenance fees. Initially, reports indicated that nine issuer ETFs would be affected. At least one of the issuers, AXS Investments, later agreed to the fee. This means the affected ETFs will be from Simplify Asset Management, Day Hagan, Sterling Capital, Cambiar, Regents Park, Rayliant, Adaptive and Running Oak.
When contacted for comment, a Fidelity spokesperson said: “We remain committed to providing customers with the choice of an open architecture platform. Support fees help maintain the technology and service operations required to ensure a positive environment for investors. experience.
With the exception of Simplify (which has 26 ETFs) and Regents Park (which has 10 ETFs), the affected sponsors each operate only a handful of ETFs. Cumulative assets amount to US$5.8 billion, of which Simplify alone accounts for US$4 billion.
The story attracted widespread attention from media sources and social media users due to Fidelity’s use of what appeared to be a “pay-to-play” scheme.
Carlos Marbot, founder and financial planner at Fig Financial Planning in Greenville, South Carolina, posted about the fee on X (formerly Twitter).
Another user X claimed to be an anonymous blogger in the financial industry and used the account name wall street howleralso sounded on the platform.
However, the source Wealth Management Network Respondents said Fidelity’s fee announcement breaks little new ground among custody platforms.
Lara Crigger, editor-in-chief of financial advisory firm VettaFi, said that although the law now nominally guarantees commission-free online transactions, it is common for custodians to require ETF and mutual fund managers to “pay a fee.”
“Revenue sharing or pay-to-play is deeply ingrained in the investment industry, mutual funds and ETFs,” she said. “That’s been the case for decades. Other trading platforms, including Charles Schwab and a few others, have similar revenue sharing agreements, ETF issuers are required to pay a certain amount of fund income to be listed on the platform.
According to the Charles Schwab website, all ETFs are subject to management fees and expenses. Schwab charges fees to third-party opaque ETFs or their sponsors for platform support, shareholder communications, reporting and other management services. These fees typically equal 10% of Schwab’s annual holdings.
Krieger noted that custodians may charge investors a variety of other fees for accessing funds on their platforms, ranging from per-trade fees for options trading to fees for using a telephone broker. “It’s just another expense to add to the schedule.”
However, while retail investors purchasing the affected ETFs on their own may complain about paying Fidelity an extra $100 in service fees, in theory it is an expensive proposition for RIAs investing and potentially buying on behalf of multiple clients. Many are proposing ETFs not only to take advantage of appropriate market timing, but also to rebalance a company’s portfolio. in practice? These ETFs are too small to influence the investment decisions of many RIAs.
Most of the ETFs subject to Fidelity’s $100 service fee are niche ETFs with assets of $100 million or less, and there are assets on the market, said Jeremy Keil, a financial advisor in New Berling, Wisconsin. Multi-billion dollar funds. “I just don’t think it’s a big deal. These are specialty ETFs that I’ve basically never heard of before. It’s really not going to affect a ton of positions.
Krieger noted that financial advisers she spoke to seemed annoyed by Fidelity’s attempts to force money managers to pay. But if they happen to be invested in one of the affected ETFs and the fees are too high, they are more likely to abandon that ETF than to abandon Fidelity as a custodian.
Kyle agrees. For RIAs, moving accounts to another custodial platform is a pain, “and those custodians will most likely do something similar.”
Like Krieger, he points out that “free online trading” has always been a fantasy as custodians have to find new ways to make money.
“That’s the problem with these zero-dollar commission deals — all they’re doing is hiding the actual costs,” he said.
