"...Charles Schwab is poised to reimplement them next year, Ignites reported last month. That follows moves by Fidelity, and other big broker-dealers like Morgan Stanley and LPL, to charge issuers for shelf space on their platforms. It’s not worrying large asset managers, but the fees could put pressure on small and new players to make their funds stand out..."
As ETFs proliferate (self-standing or as ETF classes), newer and smaller ETFs will face several problems - (i) finding willing authorized-participants and market-makers, (ii) low liquidity reflected in wide bid-ask spreads, (iii) platform fees paid by ETF sponsor and/or investors. So, just announcing a new ETF launch may not mean much.
https://www.thedailyupside.com/etf/industry-news-etf/schwab-charge-for-etf-shelf-space-may-hit-small-shops-hardest/
Comments
Stock trading remains free. What is the difference? Brokerages can make money on stocks by lending them out, but ETFs can be lent out as well. Or at least they could in 2017 when this brochure was written.
The main difference I see is that ETFs, like other funds, have a revenue source from investors (expense ratio) that brokerages can tap into. Many ETFs already have 12b-1 fees in their filings, though they are currently set at 0.00%. This suggests that the industry has expected for years to be charged shelf space, and can turn these fees on quickly.
For example, from the SAI for several of Fidelity's ETFs:
15% of what etf issuers get or a $100 transaction fee.
Assume an investor made a $10,000 etf purchase and the etf's expense ratio was 1.00%.
The investor would incur a $100 cost to hold the etf for one year (excluding trading costs, etc.).
Would Schwab "earn" a $15 cut associated with the initial purchase?
How do these etf fees compare to OEF fees charged for brokerage platform availability?
... and yet Schwabbie will continue paying nothing on cash held in brokerage accounts.
The rack rate for shelf space at brokerages like Fidelity and Schwab is 40 basis points for NTF and a lot lower (10-15 basis points?) for TF funds. Some families get discounts. The brokerages have disclosure statements if you want the exact figures. Funds that refuse to pay to play, like Vanguard are sold with high ($75-$100) transaction fees at these brokerages.
The rack rate of 40 bps for NTF funds is quite high!
Yes it is quite high. When Schwab started OneSource, I believe it was 0.25%.
If you aren’t making progress with the representative, ask to speak with a senior manager. Let them know that if Schwab offers free trades on Vanguard funds, you would seriously consider transferring your portfolio from Vanguard to Schwab.
AUM in that ETF =$826,204,748
I guess I'm safe.(EWS.)
Part of that partnership is to offer iShares NTF. Even if every broker starts charging fees to trade ETFs, the big ETF players will still be cutting deals like this. This tends to support yogi's speculation that only the boutique firms will be subject to ETF fees by brokerages.
https://www.etftrends.com/2013/03/fidelity-ishares-expand-etf-partnership-what-does-it-mean/ (2013)
Another part of the Fidelity/iShares deal is that Fidelity will push iShares. You can see the favored status that Fidelity gives iShares on its ETF research page. It highlights Fidelity and iShares ETF only.
https://digital.fidelity.com/prgw/digital/research/etf
I figure this is something like the deal that Schwab has with marketing T. Rowe Price funds.
https://riabiz.com/a/2022/4/19/t-rowe-price-gains-house-brand-status-on-schwabs-active-fund-platform-and-will-pay-up-to-10-million-yearly-for-the-honor-but-the-deal-is-not-without-potential-conflicts-of-interest