Brokers May Introduce ETF Service Fees: How Issuer Payments Could Impact Investors

In recent years, most brokers have eliminated ETF transaction fees, but this trend may be reversing as platforms seek to replace lost revenue.

Fidelity now charges investors a “service fee” for certain ETFs, requiring them to pay if issuers don’t cover costs. The fee applies to ETFs from smaller issuers like Roundhill and LifeX, while ignoring major firms like Vanguard.

Charles Schwab is reportedly negotiating with ETF issuers to establish similar back-end fees. If an issuer doesn’t participate, investors could face transaction costs when buying those ETFs.

Morgan Stanley, which owns E*TRADE, charges issuers $10,000 annually per fund under a licensing fee. While it may exclude non-paying ETFs from its platform, no exclusions have been observed.

E*TRADE and J.P. Morgan Investor Solutions do not currently impose transaction fees on non-participating ETFs. However, J.P. Morgan might remove such ETFs from its platform, though no exclusions have been reported.

Brokerages are turning to back-end issuer fees to offset declining commission revenue. Platforms like Fidelity and Schwab may introduce investor-facing service fees as a deterrent for non-paying issuers.

These shifts could affect retail investors, as ETFs — traditionally portable across platforms — might become less accessible to users of brokers imposing fees or restrictions.

Brokers not currently charging back-end fees, including Firstrade, CashApp, and Robinhood, are less likely to introduce consumer-facing charges.

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