Fidelity Investments is flexing its muscles in efforts to extract payments from ETF firms in exchange for listing and maintaining their products on its massive platform, stoking industry ire.
The Boston-based investment powerhouse already won agreements with nine boutique firms after formally warning them in March that charges could be imposed directly on their ETF investors if discussions break down.
It's now in active discussions with other asset managers on similar revenue-sharing agreements.
While maintenance fees aren't a new phenomenon — mutual fund firms have long paid Fidelity for the operational support it provides by listing products — they're less commonplace among ETFs. The bid to eke out ETF-derived revenue threatens to add on expenses in a particularly cost-conscious corner of the market.
"As active ETFs have grown, we've reached a new phase of this evolution," said Ben Johnson, head of client solutions at Morningstar. "We've come full circle back to asset managers sharing a portion of their fee revenues with platforms for the privilege of being placed on their shelves."
The arrangements being negotiated generally involve Fidelity taking 15% of total fund revenue, said a person familiar with the matter who declined to comment because the conversations are private.
Fidelity told at least one money manager that it won't populate its funds on the firm's online search bar if no deal is reached, according to another person familiar with the discussions.
It has also floated a charge — potentially up to $100 — on investors who placed a buy order for a fund issued from a firm that declined to forge an agreement, Bloomberg previously reported.
Fidelity's efforts come as retail traders and registered investment advisers continue to shift money out of mutual funds and into generally cheaper, more tax-efficient ETFs.
That's spurring Fidelity, which slashed trading commissions to zero for ETFs in 2019, to seek out fresh industry revenues on products listed on its market-leading trading platform.
