Fidelity has revealed intentions to introduce a new pricing model for buying exchange-traded funds (ETFs). Should the fund sponsors refuse brokerage’s coverage fees, investors will now face a fee of $100 per trade for ETFs worth $2,000 or more.
For trades worth $2,000 or smaller, a fee of 5% is applied to the trade’s value. This change breaks with the trend in the industry towards offering more affordable trading choices.
Fidelity’s brokerage division is proposing that ETF sponsors make a payment of 15% of their earnings to cover certain charges. This fee structure marks a shift from the past decade of decreased trading costs, which were primarily intended to benefit customers. As a consequence, Fidelity’s decision to implement these fees signifies an industry-wide reassessment of brokerage platforms’ revenue generation methods.
Impact on ETF Sponsors and Investors
Some ETF providers are expressing varying opinions about Fidelity’s new service charge plan, set to begin in June. While several smaller firms have reluctantly accepted the unavoidable fee increase, others are still negotiating the terms of payment. This situation could result in higher costs for investors, potentially leading larger fees for future ETF launches as issuers seek to recoup these expenses.
It seems that Fidelity is requesting a fee of 15% from ETF issuers in order to be made available on their platform and prevent investors from paying a $100 trade fee.
One issuer: “The next ETF we come out w/, we’re going to go to market w/ max fee we can justify.”
Brutal.
via @double_you_ess
— Nate Geraci (@NateGeraci) April 9, 2024
In a similar vein, David Young, CEO of Regents Park Funds, has voiced concerns over increasing financial strains that might push the company to launch new ETFs with increased fees to offset costs. The revised fee structure would enable Fidelity to cover various services such as investment analysis and instructional resources for clients, without endorsing specific ETFs.
Reactions and Comparisons with Industry Standards
Industry experts have strongly criticized the suggested $100 fee for ETF trades, arguing that it significantly deviates from what investors are accustomed to. Elisabeth Kashner, an analyst at FactSet, proposed a different perspective: spreading these expenses among all fund investors. Consequently, total costs would rise, potentially making funds less competitive in the cutthroat ETF market. Low expense ratios are essential for staying competitive.
Charles Schwab, a major contender in the commission-free ETF trading sector, currently charges some ETF sponsors a 10% fee. Unlike Fidelity, however, Schwab has not yet announced plans to introduce a similar fee program. Fidelity’s decision underscores a broader industry debate about the sustainability of commission-free trading models and the need for companies to explore alternative revenue streams.
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2024-04-10 01:15