Beginning in June, Fidelity intends to implement a new fee for ETF trades that do not have sponsor support. This change will have an impact on both investors and ETF sponsors.

Fidelity's new fee structure for purchasing exchange-traded funds (ETFs) will require investors to pay $100 for each trade on an ETF valued at $2,000 or more if the fund sponsors do not agree to the brokerage paying support fees. For trades amounting to $2,000 or less, the fee will be 5% of the trade value. This marks a significant departure from the industry's trend of providing customers with inexpensive trading options.

Fidelity is urging ETF sponsors to make a support payment of 15% of revenue to avoid these charges. This shift in fees is a change from over a decade of decreasing trading costs aimed at benefiting customers. Fidelity's decision to introduce these fees is part of the industry's reassessment of brokerage platforms' revenue models.

Impact on ETF Sponsors and Investors

The introduction of Fidelity's new service charge plan, set to take effect in June, has prompted mixed reactions among ETF providers. While some issuers, particularly smaller companies lacking bargaining power, have accepted that support fees cannot be avoided, others are still negotiating the terms of payment. This situation could lead to additional costs for investors, especially in future ETF offerings, as issuers may raise fees to recoup the support payments.

David Young, CEO of Regents Park Funds, has expressed concerns about increasing financial pressures that could prompt the firm to launch new ETFs with higher fees to offset some of the costs. The new fee schedule will enable Fidelity to cover various services, such as investment research and educational materials, provided to customers without promoting specific ETFs.

Reactions and Comparisons with Industry Standards

The proposed $100 fee for ETF trades has received criticism from industry experts who believe it is significantly higher than what investors are accustomed to. Elisabeth Kashner from FactSet has suggested that these costs could be spread out among all fund investors, potentially raising overall expenses and impacting fund competitiveness. Maintaining low expense ratios is crucial in the competitive ETF market.

While Charles Schwab charges some ETF sponsors 10% in commission-free ETF trading, they have not announced a similar fee program. Fidelity's move highlights the industry's reconsideration of commission-free trading models and the search for alternative revenue sources.