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Fidelity Introduces Fees on ETF Trades Lacking Sponsor Fees, Shakes Up Industry

Fidelity's New Fee Policy on ETF Trades Sparks Industry Rethink

Wed, 10 Apr 2024, 09:58 am UTC

Fidelity announces a groundbreaking shift in its fee structure for ETF trades, imposing charges on transactions without sponsor support, marking a significant pivot from the industry's long-standing practice of low-cost trading. This move, set to commence in June, reflects a broader reassessment of brokerage revenue models and could herald enhanced investor services.

Fidelity Shifts Market Paradigm with New ETF Trade Fees, Eyes Enhanced Investor Services

In a recent report by CoinGape, the fee for trades equal to or less than $2,000 will be 5% of the trade value. This step marks a significant departure from the industry's recent trend of providing customers with low-cost trading options.

Fidelity's brokerage side is proposing that ETF sponsors pay a support payment of 15% of revenue to avoid these fees. While this marks a departure from more than a decade of lower trading costs, it also opens up new possibilities. Fidelity's introduction of these fees is part of the industry's re-evaluation of brokerage platforms' revenue models, which could potentially lead to enhanced services and offerings for investors.

Mixed Reactions Emerge as Fidelity's ETF Fee Plan Stirs Debate Among Providers

Fidelity's new plan for service charges, which will go into effect in June, has elicited mixed reactions from ETF providers. Although several issuers, particularly smaller firms with limited bargaining power, have conceded that support fees cannot be avoided, others are still negotiating payment terms. This situation may result in additional costs for investors, particularly in future ETF offerings, as issuers are likely to raise fees that help to recover the support payments.

Similarly, Regents Park Funds' Chief Executive Officer, David Young, has expressed concern about rising financial pressures, which may lead to the firm issuing new ETFs with higher fees to help offset some of the costs. The new fee schedule will allow Fidelity to provide various services to customers, including investment research and educational materials, without promoting any specific ETFs.

Industry Backlash Against Fidelity's ETF Fee Plan Highlights Broader Commission-Free Trading Debate

According to a source, the proposed $100 fee for ETF trades has sparked widespread criticism from industry experts, who believe it is significantly out of step with what investors are accustomed to. Elisabeth Kashner of FactSet explained that these expenses could be spread out among all fund investors, increasing total costs. This could result in funds losing competitiveness, emphasizing the importance of keeping expense ratios low in the competitive ETF market.

Charles Schwab, another major player in the commission-free ETF trading space, already charges some ETF sponsors 10%. However, Schwab has yet to state that they intend to launch a similar fee program. This indicates that Fidelity's move is not an isolated event but rather a reflection of a broader industry rethinking the viability of commission-free trading models and the search for new revenue streams.

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