New details have emerged about Fidelity Investments’ plan to add fees to its exchange-traded fund platform, raising concerns among financial advisors and industry observers that the additional costs will spread throughout the industry.
Boston-based Fidelity, which manages more than $1 trillion worth of ETF assets on its platform, is threatening to charge investors $100 to buy ETFs from issuers that refuse to do so An annual fee of 15% of the fund expense ratio will be paid, a spokesman confirmed. The spokesman declined to comment otherwise.
Fidelity, which manages $69.1 billion in 67 exchange-traded funds, recently announced plans to introduce the $100 markup. It released a memo on March 28 to nine ETF issuers that had not yet agreed to the new fee arrangements.
Matt Markiewicz, managing director of AXS Investments in Port Chester, NY, represents one of the issuers named in the Fidelity memo. He said his company has since agreed to join Fidelity’s revenue sharing plan.
“We’ve had a few calls from RIAs using our products,” he said. “It caused some confusion.”
Still, Markiewicz downplayed the impact of the fee. AXS is a boutique ETF issuer with $1.1 billion in assets under management, and Markiewicz said the 15% annual share of ETF revenue “ends up being a lot smaller than you think.”
To illustrate, if the fee were applied to the $64 million AXS Astoria Inflation Sensitive ETF (PPI)that calculates 76 basis points, Fidelity would raise just over $700.
Sources familiar with the rollout of the new fee for ETF issuers say Fidelity is still working out the details of how it will track the fees it plans to charge, as the annual fee is expected to be applied only to assets , which will be transferred to ETFs after June 3.
The major brokerage firms have long charged asset managers a fee for recognizing shelf space as preferred funds for building client portfolios. However, this move by Fidelity is seen as breaking new ground because it is less about paying for shelf space and more about preventing investors from having to pay a $100 commission to buy an ETF. Fidelity disputes that the $100 fee is a commission, saying it only applies to purchases and not sales of ETFs.
“Unfortunately, pay-to-play arrangements have long been a dirty little secret in asset management,” said Nate Geraci, president and founder of financial advisory firm The ETF Store in Overland Park, Kansas.
“Platforms like Fidelity are for-profit companies and of course have the discretion to charge for services,” he said. “What needs to change is greater transparency in these agreements and a level playing field where issuers pay the same share of revenue regardless of their size.”
Both ETF issuers and financial advisors are closely monitoring how and where things are going.
“This is what you get when you have very little competition in the large RIA space,” said Ed Butowsky, managing partner at consulting firm Chapwood Investments in Plano, Texas. “If Fidelity gets away with it, make no mistake, (rival RIA managers) Schwab and Pershing will too.”
Charles Schwab Corp., a major custodian, said the company does not charge commission. “The commission for all ETFs available on Schwab’s platform is $0 for U.S.-listed ETFs traded online.” BNY Mellon Pershing, another major custodian, did not respond to a request for comment.
Jay Coulter, president of RIA consulting firm Resilient Advisor, expects the new Fidelity fees to gain momentum across the industry.
“I don’t think there is enough attention being paid to this issue because once the gate is opened, other platforms will see the opportunity that exists to start increasing these fees,” he said.
Permalink | © Copyright 2024 etf.com. All rights reserved