Starting June 1, Fidelity will charge a $100 fee on purchase trades on more than 120 exchange-traded funds (ETFs). It’s one of the most investor-unfriendly decisions I’ve seen in a while.
It started with Fidelity requiring ETF issuers to pay an asset-based fee to help cover trading costs. Those who declined will have the $100 fee added to purchases of shares of their ETFs on Fidelity.
Roundhill is the most impacted issuer. More than 40 of its ETFs will be subject to the fee. The Roundhill Magnificent Seven ETF (MAGS +1.90%), the Roundhill Generative AI & Technology ETF (CHAT +2.63%), and the Dan Ives Wedbush AI Revolution ETF (IVES +1.77%) are funds with more than $1 billion in assets under management (AUM) that will be charged the fee.
Even though this fee only applies to just over 100 mostly smaller ETFs, it’s the kind of action that immediately makes Vanguard look more attractive.
Image source: Getty Images.
Why Fidelity is charging commissions on certain ETF trades
While trades are free for investors on many platforms, they still cost money for the brokerage platforms. Many ETF issuers subsidize the fee themselves so that the funds remain accessible on the platform.
Some smaller issuers don’t pay this fee, and it can be costly to brokerages like Fidelity. Now, Fidelity is essentially telling issuers to subsidize the fee, or else investors will be charged every time they purchase shares. Fidelity isn’t threatening to kick these issuers’ funds off the platform (yet). But it’s basically telling them to play ball, or they will make investing in their ETFs less attractive.
Unfortunately, it’s not the issuers who will suffer immediately. Anybody who wants to buy shares of the affected ETFs will pay the price.
Major ETFs affected by Fidelity’s $100 fee
The full list of ETFs that will be subject to the $100 fee can be found here. The major ETFs impacted are listed below.
| Ticker | Fund | Assets Under Management |
|---|---|---|
| MAGS | Roundhill Magnificent Seven ETF | $4.4 billion |
| CHAT | Roundhill Generative AI & Technology ETF | $1.3 billion |
| IVES | Dan IVES Wedbush AI Revolution ETF | $1.0 billion |
| QDTE | Roundhill Innovation-100 0DTE Covered Call Strategy ETF | $824 million |
| PTL | Inspire 500 ETF | $762 million |
| HNDL | StrategyShares Nasdaq 7HANDL Index ETF | $637 million |
| BINV | Brandes International ETF | $481 million |
| CLSE | Convergence Long/Short Equity ETF | $444 million |
| HECA | Hedgeye Capital Allocation ETF | $410 million |
| XDTE | Roundhill S&P 500 0DTE Covered Call Strategy ETF | $289 million |
| IPO | Renaissance IPO ETF | $140 million |
Data source: Fidelity.
For the most part, the ETFs subject to the fee are small and don’t see a lot of trading activity to begin with. But there are some familiar names on the list, including the Roundhill Magnificent Seven ETF.
For many of these ETFs, this $100 fee could make them almost untradable. That “Magnificent Seven” ETF currently trades at around $66 per share, so the fee for a single-share trade would be more than the cost of buying that share. Even with a $5,000 transaction, that fee amounts to a 2% commission up front.
What should Fidelity account holders do?
If you’re buying shares of these ETFs, especially in smaller amounts, you should look somewhere else. It’s simply not financially feasible to pay a $100 transaction fee every time you want to buy shares. Moving to a platform like Vanguard or Schwab makes sense since they don’t charge fees like this.
It’s important to remember, however, that this fee applies only to a small number of ETFs. If you don’t trade these funds, you won’t be impacted.
But Fidelity may keep adding ETFs to this list. However, with Fidelity’s size and scale, it should realize that the bad PR it will get from doing this will almost certainly outweigh any financial benefit.
Fidelity brokerage account holders should consider moving to a different platform. It’s hard to view this as anything less than a strong-arm move by a financial giant that’s only going to impact investors.