Fidelity Could Levy Fees on Buyers of Select Small ETFs

Advisors that custody with Fidelity – chances are that applies to plenty of readers – as well retail investors that trade with the brokerage firm take note. It’s rumored the company could soon charge fees on select exchange traded funds issued by a small cadre of issuers.

That’s a break from the usual $0 commission charged by brokers, such as Fidelity, Charles Schwab and Vanguard, on the bulk of available ETFs. Bloomberg reported Thursday that Fidelity has placed nine issuers on its Surcharge Eligible ETF list. Those issuers are as follows: AXS Investments, Day Hagan, Sterling Capital, Cambiar, Regents Park, Rayliant, Adaptive, Running Oak and Simplify Asset Management.

Should Fidelity proceed with the move, which would occur on June 3, “investors will face a $100 servicing charge when they place buy orders on a cohort of exchange-traded strategies,” according to Bloomberg.

That could be off-putting to advisors and investors that have grown accustomed to Fidelity and other brokerage firms not charging commissions on ETFs. Boston-based Fidelity made that decision in 2019, further driving costs lower for advisors and retail investors.

Why It Matters

As noted by Bloomberg, the total amount of ETFs courtesy of the aforementioned issuers that could be placed on Fidelity’s Surcharge Eligible ETF list represent just 0.5% of all the ETFs and mutual funds available on the firm’s platform.

That implies the odds are low that advisors are currently accessing these products. But in the event they are, a $100 charge to access one of those funds could make the products less appealing, assuming the returns aren’t worth the extra squeeze.

While that charge isn’t the same as an annual expense ratio, it would add to total cost of ETF ownership something that advisors and plenty of savvy investors are aware of when it comes to ETFs. Obviously, the lower a fund’s fee, the more an investor keeps over the long-term. Alone, that’s reason enough to consider inexpensive funds and data confirm advisors are doing just that.

Why It Matters Part II

Another reason the Fidelity surcharge, should it materialize, is important is because it adds to the already highly competitive nature of the ETF industry. Advisors could further their embrace of brand name issuers while potentially missing out on compelling ETFs from smaller issuers.

Chances if the urcharge Eligible ETF list is deployed, it won’t be applied to all of the above issuer’s products. For example, Simplify Asset Management offers a deep bench of ETFs, several of which are large enough to not merit a $100 buy order surcharge.

Conversely, some of the issuers with small product stables could be most vulnerable to the Fidelity levy, but for now, that’s just speculation because there is no official confirmation the broker will proceed down this path.

Related: Tips for Selecting the Right ETFs for the Long Haul