Fidelity to charge up to $100 on some ETF buy orders

Fidelity will start charging 5% of the value of a client ETF buy order, capped at $100, effective June 1. The fee applies to ETFs whose sponsors do not make direct asset-based payments to Fidelity. The firm published a list of affected ETFs and said the list may change without notice.

Fidelity’s disclosure states the fee revenue will support availability of those ETFs on its brokerage platform, including shareholder services, calculation and analytical tools, and research and education materials. The firm described the arrangements as relationship-based pricing with asset managers that provide direct payments to the custodian.

Fidelity provided prepared statements in response to industry questions. Steve Richard, who has led the company’s clearing and custody operations since January, wrote that clients can “tap Fidelity’s brokerage, investing and other market-leading businesses.” Trevor Norton, head of custody, wrote that pricing reflects continuing investment in client service, practice management support, technology and trading capabilities, and that clients consider the “total cost of ownership” when choosing a custodian.

The custodian unit oversees about $5.5 trillion in assets under administration for roughly 3,300 registered investment advisors and wealth management firms. Fidelity processes about 5.5 million daily trades across 48 capital markets and in 21 currencies, figures the firm provided in its materials.

Custodians receive revenue from several sources, including transaction charges paid by investors, fees from fund companies for having products on platform menus, and interest on cash sweeps and securities lending. The growth of ETFs has altered distribution economics that once centered on mutual funds, and firms including Fidelity and Charles Schwab have moved to collect more fees from ETF sponsors.

Industry consultants and executives point to greater opacity in how custodians monetize product availability. Tim Welsh, founder of Nexus Strategy and a former executive at Schwab Advisor Services and Merrill, commented that exclusivity in product offerings has diminished and that service quality is a primary consideration for advisors. He added that specialized service desks and long track records give large custodians advantages handling complex advisor needs.

Advisors and RIA platforms cite custody relationships as important during growth and recruitment. Trey Prescott, director of business development at Advisory Services Network, said Fidelity was the first custodian to accept ASN when the platform had little or no assets and remains a key provider for the firm’s $11 billion in client assets. Recruiting firms and some advisory groups maintain relationships with multiple custodians to reduce service interruptions during transitions.

Fidelity reiterated that it offers an open-architecture investment lineup and a range of services for advisors, and it described the ETF servicing arrangements as a way to ensure products on its platform receive operational and support resources. The published list of ETFs subject to the fee is part of Fidelity’s disclosure and will take effect June 1 for purchases of ETFs whose sponsors do not make the required direct asset-based payments.