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I saw the same teaser and thought "when Simplify is your headline name, you know you've got a small story." Assuming that the providers are, indeed, tiny boutiques on whole, I feel badly for them. That said, TNSTAAFL.
Per BBG --- Day Hagan, Sterling Capital, Cambiar, Regents Park, Rayliant, Adaptive and Running Oak are among those firms included in the so-called Surcharge Eligible ETF list, it added.
Simplify has $ 4 Billion AUM. Maybe not Vanguard ( or Fidelity ) but they have accumulated this in only a couple of years
I don't quite understand why FIDO feels the need to do this other than to make $. Is their role in ETFs more involved than buying and selling stocks? Do they participate in the creation and redemption process and thus incur extra costs?
"Fidelity Investments plans to charge investors a $100 service fee on exchange-traded funds purchased from nine firms that don’t have maintenance arrangements with the financial services giant, a spokesman confirmed."
The following note was included on my March Fido account statement.
"In June 2024, Fidelity will implement a new service fee for some ETF and mutual fund purchases. This service fee will apply to a limited number of ETFs and mutual funds offered by providers that do not pay Fidelity a direct, asset-based fee to support their ETFs' and/or mutual funds availability on our brokerage platform, including support for shareholder support services, the provision of calculation and analytical tools, and general investment research and education materials regarding ETFs and mutual funds. Customers purchasing these ETFs and mutual funds will be charged a service fee of up to $100. The applicable service fee will be shown on the trade verification page when placing an order for one of these ETFs or mutual funds. Please note that ETFs that are supported by their provider through an asset-based fee (and exempt from the service fee) will not be marginable for 30-days after purchase."
That last sentence is NOT new and has been in place, "Please note that ETFs that are supported by their provider through an asset-based fee (and exempt from the service fee) will not be marginable for 30-days after purchase."
"Customers purchasing these ETFs and mutual funds will be charged a service fee of up to $100."
I am reading this to mean the fees is applicable when purchasing and not when selling which if true, existing positions should be exempt from the fees?
I am assuming the $100 fees is in lieu of the $50 transaction fees applied on TF mutual funds. I am fairly certain mutual funds subject to these enhanced(?) fees, would not qualify for $5 auto invest.
Very interesting. The stated rationale sounds odd as you can buy stocks without paying a fee. I use Pro-Shares in very small quantities to short various markets time to time. But looks like they’re a bigger fish and not affected by this.
"Certain ETF sponsors pay an asset-based fee in support of their ETFs on Fidelity’s platform that supports services including related shareholder support services, the provision of calculation and analytical tools, as well as general investment research and education materials regarding ETFs. Fidelity does not receive payment from these ETF sponsors to promote any particular ETF to its customers, and these ETF shares are not marginable for 30 days after purchase. Customers purchasing shares in a limited number of ETFs that are not supported by their providers will be subject to a $100 service fee. ... FundsNetwork Transaction-Fee Funds Purchases: Online: $49.95 or $100 per purchase. To identify any applicable transaction fees associated with the purchase of a given fund, please refer to the “Fees and Distributions” tab on the individual fund page on Fidelity.com ... • FundsNetwork No Transaction Fee (NTF) Funds and ETFs – For funds participating in the NTF program and certain ETFs, Fidelity receives compensation that can typically range from 0 to 50 basis points based on the average daily balance. As of 12/31/2022, 68% of the mutual funds currently in the NTF program are in the 35–40 basis point range. For NTF funds with a 12b-1 fee, the fund family may use the 12b-1 fee as part of its NTF payment.
• FundsNetwork Transaction Fee (TF) Funds – For funds participating in the TF program, Fidelity receives compensation based on: (1) per-position fees that typically range from $3 to $25 per brokerage account or (2) asset-based fees that typically range from 0 to 20 basis points based on average daily assets. As of 12/31/2022, 63% of the mutual funds participating in the TF program are in the $12–$19 per-position fee range or 8 to 12 basis point range. TF compensation is in addition to any 12b-1 fees as described in the fund’s prospectus."
There is also news that some of the 9 are considering making a deal with Fido, or reimbursing buyers for Fido fees (that can be complicated). But doing nothing may be a death warrant for them. If these Fido fees stick, others brokers will follow.
That last sentence is NOT new and has been in place, "Please note that ETFs that are supported by their provider through an asset-based fee (and exempt from the service fee) will not be marginable for 30-days after purchase."
The fee schedule you linked to is a pdf created 1/16/2016, but last modified a just a couple of weeks ago, on 3/18/2024. Wayback machine took a snapshot on 12/11/2023 that omits this sentence. The paragraph in question used to read:
Certain ETF sponsors pay an asset based fee in support of their ETFs on Fidelity’s platform, including related shareholder support services, the provision of calculation and analytical tools, as well as general investment research and education materials regarding ETFs. Fidelity does not receive payment from these ETF sponsors to promote any particular ETF to its customers.
The new (March 2024) version of this paragraph reads:
Certain ETF sponsors pay an asset-based fee in support of their ETFs on Fidelity’s platform that supports services including related shareholder support services, the provision of calculation and analytical tools, as well as general investment research and education materials regarding ETFs. Fidelity does not receive payment from these ETF sponsors to promote any particular ETF to its customers, and these ETF shares are not marginable for 30 days after purchase. Customers purchasing shares in a limited number of ETFs that are not supported by their providers will be subject to a $100 service fee.
I am going by my actual experience with my margin accounts at both Fido and Schwab where the initial purchases of anything (including the m-mkt funds) don't become marginable for 30 days. Then, at the end of the 30-day period, there are routine journal entries that auto-move stuff from cash to margin side.
So, this 30-day practice (before things become marginable) isn't new, and has been going on for years. The PDF document editors may have put this language in/out places for clarifications. The $100 fee rule to kick in 06/2024 is definitely new.
At TD the only MM funds available are their own (Schwab MMFs). Even those are not marginable the first 30 days, which meant that the sale of these non-marginable MM have to settle first before I can place a buy order of another security.
Generally I don't use margin or pay much attention to it. So my experience with 30 day waits for securities to become marginable is limited.
That said, as I think about it, the last time I purchased additional shares of an ETF those new shares were shown on a (cash) line separate from the older (marginable) shares. 30 days later those two lines were merged, i.e. the new shares became marginable.
Fidelity seems to have added more heat than light with their latest pdf edit. The changes highlighted above document a 30 day wait for ETF shares to become marginable. But that paragraph is in a section entitled Stocks/ETFs. By saying only that ETFs have this 30 day delay while not mentioning stocks, Fidelity seems to be saying that stocks are immediately marginable. I agree with Yogi that this is not what is going on - all securities are treated the same way.
Likely just sloppy editing - whoever added the $100 ETF fee description figured that while they were in the neighborhood they might as well clarify the marginability of ETFs. Unfortunately, adding this clarification only for ETFs just added confusion.
Selling shares is a completely different matter that has nothing to do with margin. At Vanguard I am free to place a purchase order in a cash (not marginable) account without cash being immediately available. I receive a warning saying that I'd better have cash available at the time that trade settles. So I can place buy and sell orders for mutual funds (in different families) the same day. Without margin.
At Fidelity the process is a bit more complex (I have to do that by phone and am limited to 90% of the value of the fund being sold). Still, one can do same day sells and buys in cash accounts, i.e. accounts without margining enabled.
Just to clarify my prior message. In my taxable TD account (margin enabled), I can place a sell and a corresponding buy the same day because there are always legacy marginable securities. It is in my IRA account that TD prevented me from placing a buy order of a security the same day I placed a sell order for a non-marginable money market fund balance. It happened only once and came as a surprise to me. After that, I try not to have too much activity in the IRA money market fund. My initial reaction was to leave sale proceeds in non-interest bearing cash but now I use cash like ETFs as my sweep account in the IRA. Quite inconvenient and also there is that loss from bid-ask spreads. One more month of this nonsense before moving to Schwab.
According to a Twitter LINK, Fido is asking for 15% of the revenues generated from the Fido platform to waive $100 fee on those ETF buyers at Fido platform. Posters are asking, why not such fees for stocks or CEFs? Why single out ETFs? Revenue-sharing models do exist in the marketing of mutual funds and ETFs.
Comments
I don't quite understand why FIDO feels the need to do this other than to make $. Is their role in ETFs more involved than buying and selling stocks? Do they participate in the creation and redemption process and thus incur extra costs?
https://www.thinkadvisor.com/2024/03/29/fidelity-to-charge-100-fee-on-9-firms-etfs/
"In June 2024, Fidelity will implement a new service fee for some ETF and mutual fund purchases.
This service fee will apply to a limited number of ETFs and mutual funds offered by providers that do not pay Fidelity a direct, asset-based fee to support their ETFs' and/or mutual funds availability on our brokerage platform, including support for shareholder support services, the provision of calculation and analytical tools, and general investment research and education materials regarding ETFs and mutual funds.
Customers purchasing these ETFs and mutual funds will be charged a service fee of up to $100.
The applicable service fee will be shown on the trade verification page when placing an order for one of these ETFs or mutual funds. Please note that ETFs that are supported by their provider through an asset-based fee (and exempt from the service fee) will not be marginable for 30-days after purchase."
I am reading this to mean the fees is applicable when purchasing and not when selling which if true, existing positions should be exempt from the fees?
I am assuming the $100 fees is in lieu of the $50 transaction fees applied on TF mutual funds. I am fairly certain mutual funds subject to these enhanced(?) fees, would not qualify for $5 auto invest.
Thanks for the notice.
"Certain ETF sponsors pay an asset-based fee in support of their ETFs on Fidelity’s platform that supports services including related shareholder support services, the provision of calculation and analytical tools, as well as general investment research and education materials regarding ETFs. Fidelity does not receive payment from these ETF sponsors to promote any particular ETF to its customers, and these ETF shares are not marginable for 30 days after purchase. Customers purchasing shares in a limited number of ETFs that are not supported by their providers will be subject to a $100 service fee.
...
FundsNetwork Transaction-Fee Funds
Purchases:
Online: $49.95 or $100 per purchase. To identify any applicable transaction fees associated with the purchase of a given fund, please refer to the “Fees and Distributions” tab on the individual fund page on Fidelity.com
...
• FundsNetwork No Transaction Fee (NTF) Funds and ETFs
– For funds participating in the NTF program and certain ETFs, Fidelity receives compensation that can typically range from 0 to 50 basis points based on the average daily balance. As of 12/31/2022, 68% of the mutual funds currently in the NTF program are in the
35–40 basis point range. For NTF funds with a 12b-1 fee, the fund family may use the 12b-1 fee as part of its NTF payment.
• FundsNetwork Transaction Fee (TF) Funds
– For funds participating in the TF program, Fidelity receives compensation based on: (1) per-position fees that typically range from $3 to $25 per brokerage account or (2) asset-based fees that typically range from 0 to 20 basis points based on average daily assets. As of 12/31/2022, 63% of the mutual funds participating in the TF program are in the $12–$19 per-position fee range or 8 to 12 basis point range. TF compensation is in addition to any 12b-1 fees as described in the fund’s prospectus."
There is also news that some of the 9 are considering making a deal with Fido, or reimbursing buyers for Fido fees (that can be complicated). But doing nothing may be a death warrant for them. If these Fido fees stick, others brokers will follow.
I am going by my actual experience with my margin accounts at both Fido and Schwab where the initial purchases of anything (including the m-mkt funds) don't become marginable for 30 days. Then, at the end of the 30-day period, there are routine journal entries that auto-move stuff from cash to margin side.
So, this 30-day practice (before things become marginable) isn't new, and has been going on for years. The PDF document editors may have put this language in/out places for clarifications. The $100 fee rule to kick in 06/2024 is definitely new.
That said, as I think about it, the last time I purchased additional shares of an ETF those new shares were shown on a (cash) line separate from the older (marginable) shares. 30 days later those two lines were merged, i.e. the new shares became marginable.
Fidelity seems to have added more heat than light with their latest pdf edit. The changes highlighted above document a 30 day wait for ETF shares to become marginable. But that paragraph is in a section entitled Stocks/ETFs. By saying only that ETFs have this 30 day delay while not mentioning stocks, Fidelity seems to be saying that stocks are immediately marginable. I agree with Yogi that this is not what is going on - all securities are treated the same way.
Likely just sloppy editing - whoever added the $100 ETF fee description figured that while they were in the neighborhood they might as well clarify the marginability of ETFs. Unfortunately, adding this clarification only for ETFs just added confusion.
Selling shares is a completely different matter that has nothing to do with margin. At Vanguard I am free to place a purchase order in a cash (not marginable) account without cash being immediately available. I receive a warning saying that I'd better have cash available at the time that trade settles. So I can place buy and sell orders for mutual funds (in different families) the same day. Without margin.
At Fidelity the process is a bit more complex (I have to do that by phone and am limited to 90% of the value of the fund being sold). Still, one can do same day sells and buys in cash accounts, i.e. accounts without margining enabled.
Posters are asking, why not such fees for stocks or CEFs? Why single out ETFs?
Revenue-sharing models do exist in the marketing of mutual funds and ETFs.
https://www.reuters.com/business/finance/fidelity-wont-levy-proposed-fees-purchases-boutique-etf-firms-sources-say-2024-05-30/