Fidelity Imposes $100 Fee on Over 120 ETFs
Starting June 1st, Fidelity customers buying certain Exchange Traded Funds (ETFs) will face a new $100 service fee per transaction. This significant change affects a much larger selection of funds, expanding from an initial 27 to over 120 ETFs. The list of affected funds is available in the video description for interested investors.
This new fee means that if an investor buys $1,000 worth of one of these ETFs, they will immediately lose 10% of their money. This loss occurs before the investment even has a chance to grow or start earning returns. It’s a direct reduction in the initial capital put to work in the market.
Behind the Fee: A Dispute Over Support Costs
Fidelity began this process in March by notifying ETF issuers that they would need to pay a fee to Fidelity for their funds to be supported on the platform. Issuers who refused to pay this fee have seen their ETFs added to the list of those now subject to the customer-facing service charge. Essentially, Fidelity is passing on the cost of supporting these funds to the end investor because the issuers are not paying Fidelity directly.
This strategy is a departure from how many ETFs are typically listed and traded. Usually, the costs associated with listing and supporting funds are borne by the issuer or integrated into the fund’s management fees, not charged directly to the buyer at the time of purchase.
Key Funds Affected and Those Remaining Safe
Among the most notable ETFs impacted are those from Roundhill Investments, which has 40 affected funds. This includes QDTE, a popular fund known for its strategy of selling options on index-related assets. These types of funds, often called covered call ETFs, aim to generate income but can have complex strategies.
However, many widely held and popular ETFs remain unaffected by this new fee structure. Core holdings like VTI (Vanguard Total Stock Market ETF), QQQ (Invesco QQQ Trust), VO (Vanguard Small-Cap ETF), and SCHD (Schwab U.S. Dividend Equity ETF) are not on the list. These major index-tracking ETFs and others like them continue to be available without the added $100 service charge on Fidelity.
Market Impact and What Investors Should Know
For investors using Fidelity, the immediate impact is a higher cost of entry for specific ETFs. A $100 fee can be a significant barrier, especially for smaller investment amounts. This could deter investors from choosing these particular ETFs on Fidelity, potentially shifting their investment choices or their brokerage.
The move by Fidelity raises questions about how brokerages and ETF issuers interact. It suggests a potential shift where brokerages might demand payment from issuers for shelf space or support, similar to how physical retail stores charge for placement. This could put pressure on smaller ETF providers who may not have the resources to pay such fees.
For investors who trade frequently or invest smaller amounts regularly, the $100 fee per purchase can quickly add up. This makes dollar-cost averaging, a strategy where investors buy assets at regular intervals, much more expensive for these specific ETFs on Fidelity. Investors might need to consolidate their purchases into larger, less frequent trades to mitigate the impact of the fee.
Broader Investment Considerations
It is crucial for investors to verify if their chosen ETFs are on Fidelity’s new fee list before making a purchase. A quick check can save them the unexpected $100 charge. For those who prefer these specific ETFs, exploring options on other platforms might be more cost-effective.
Brokerages like Charles Schwab, Robinhood, and Vanguard are not currently imposing these $100 service fees on the same set of ETFs. This means investors can still access these funds without the added transaction cost if they use these alternative platforms. This situation highlights the importance of comparing brokerage fees and services when choosing where to invest.
The long-term implications could involve ETF issuers reconsidering their fee structures or their distribution agreements with brokerages. It might also encourage investors to favor ETFs from issuers who have agreed to pay Fidelity’s fees or to move their assets to brokerages that do not charge such fees. Investors should stay informed about changes in brokerage policies and ETF offerings.
Fidelity’s decision is set to take effect on June 1st, making it essential for customers to be aware of the affected funds and the associated costs before executing trades.
Source: Fidelity is introducing $100 ETF fees on 120+ ETFs. Here’s what you need to know+List in description (YouTube)
