Charles Schwab expects to impose fees on ETF issuers on its platform early next year, according to a recent report, which cited three unidentified sources familiar with the plans.
The move is intended to compensate for revenue lost as investors shift from mutual funds to exchange-traded funds, Ignites reported this month.
“As our platforms grow in scale and sophistication, we are thoughtfully evaluating ETF issuer fees to ensure alignment with our focus on serving retail investors and advisors,” Schwab told ThinkAdvisor in an emailed statement Friday.
Sources told Ignites that Schwab's revenue-sharing platform fee will roughly align with Fidelity's. Schwab is among the last big platforms not charging such fees, according to the article.
“The move is not very surprising, and rival Fidelity has levied platform fees for a while now," Zachary Evens, manager research analyst for Morningstar, told ThinkAdvisor in an email Friday. "While the exact arrangement with asset managers isn’t known yet, I wouldn’t be surprised if Schwab follows Fidelity’s lead in charging a percentage of an ETF’s management fee. The move toward platform fees represents another way for platforms and brokerages to supplement revenue in a largely zero commission environment.”
Fidelity charges most ETF issuers 15% of their expense ratios annually, with the exception of nine issuers who did not agree to the arrangement, Evens said. Investors in these issuers' ETFs must pay up to $100 per ETF purchase.
While Fidelity typically charges 15% of an ETF’s expense ratio, each issuer negotiates their fee, according to Dave Nadig, ETF.com president and research director, who also isn’t surprised by Schwab’s plans. Nadig, in an interview with ThinkAdvisor on Friday, noted that Schwab had suspended platform fees and commissions in the years before the pandemic.
The return to revenue sharing “pretty much puts them at a level playing field with the industry,” Nadig said.
Investors would notice only if the ETF they want becomes unavailable on the Schwab platform or the client is subject to a ticket charge, like the $100 that Fidelity charges to buy an ETF not involved in the fee program, he said.
The industry has reached the point where it has cut investor costs to the bone, so it’s not surprising to see the distribution channel charging ETF issuers, Nadig said. “I think this is the way of things.”
RIABiz noted this week that Schwab stopped charging fees to ETF sponsors about six years ago and reported that Vanguard has refused to pay fees for space for its ETFs on other companies’ platforms.
Credit: Diego M. Radzinschi/ALM
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