Fidelity Flexes Muscle in ETF Market with Revenue-Sharing Push

Fidelity Investments is scoring wins on revenue-sharing agreements with exchange-traded fund (ETF) managers following a controversial fee policy.

Investors use Fidelity’s platform to buy ETFs, and ETF managers typically charge fees. Fidelity wanted a slice of that pie.

The company struck deals with nine ETF issuers who were previously facing potential surcharges for their funds on Fidelity’s platform. These fees would have been passed on to investors if no revenue-sharing agreement was reached.

The proposed surcharge, essentially a service fee for Fidelity, could have reached 5% of an investment, capped at $100. According to a source, this fee aimed to cover costs associated with servicing ETFs and platform upgrades if managers opted out of revenue sharing.

Revenue-sharing isn’t new in asset management, but it’s a novel concept for many ETF managers.

“It’s a big effort,” said David Young, CEO of Regents Park Funds. “Fidelity has to negotiate with a lot of ETF providers.”

His firm was one of the nine facing the choice: agree to revenue sharing or let clients face the potentially “prohibitive” $100 fee. Young said this fee would have essentially killed their ETF business on Fidelity’s platform, so they opted into revenue sharing despite it squeezing their profit margins.

The U.S. ETF market is massive, holding roughly $9 trillion in assets, according to Citigroup research. This is the vast majority of the global ETF market, which sits at $12 trillion.

Fidelity’s new fee policy remains active, and the company is reportedly in talks with many more managers about revenue sharing. The standard revenue-sharing agreement with Fidelity involves managers giving up 15% of their total ETF revenue generated on Fidelity’s platform, according to the source familiar with the matter.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *