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Fidelity quietly imposes an ETF 60-day fee that makes RIAs with trading strategies seethe

Mike Durbin says that Fidelity still has net trading costs on iShares that are pretty unbeatable

Author Lisa Shidler March 15, 2013 at 5:33 PM
Admin:
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Matthew Tuttle: If I'm trading 100 shares and hold on to them forever, I'll think this is awesome, but for RIAs this is a disaster.

Jim McGuire

Jim McGuire

March 15, 2013 — 6:37 PM

I believe it is only time that Schwab would impose such fees themselves. Be nice to hear how Schwab feels about RIAs frequently trading their free ETFs but never hold them longer than a day or so. Since their compensation is derived from the ETF providers paying Schwab a certain basis points, and considering there is no such thing as a “free” trade, is Schwab happy to see their free ETFs being bought than sold in a week? I think it would be nice for RIABiz to inquire with Schwab and ask that question: “How will your you receive income from the ETF manufacturers paying you a basis points fee if the advisory firm purchases and sells your free ETF lineup within a short-time span and doesn’t hold them for the long-term?”

I believe this is a major point Schwab should publicly address. If they are OK with quick in’s-out’s for their free ETF lineup, they should publicly make that statement otherwise, I think Advisors should be wary of the lack of specifics mentioned in these types of trading circumstances. Seems to be the ultimate “bait and switch.”

If I were choosing to custody with such a firm, I would expect to receive in writing that now or in the future, they will not impose such early redemption fees. If they aren’t willing to do so, you have your answer.

Elmer Rich III

Elmer Rich III

March 15, 2013 — 6:41 PM

Fidelity is built on the Peter Lynch business model/marketing positioning – We are the best active managers so we make the decisions. Of course, active, proprietary management is the highest profit margin in financial services. Incredible profit margins, in fact.

This rule just follows the Fidelity proprietary model.

Brooke Southall

Brooke Southall

March 15, 2013 — 7:31 PM

Jim,

Thanks for the good analytic question here. It seems reasonable to ask, though it’s generally not the type of question that gets answered in much detail by the big providers. Still, even a no-comment says something and if we were fully alert, we would have thought to ask.

I wonder (truly and not facetiously) how many RIAs frequently trade ETFs within the two-month window.

Barron’s just came out with an article blasting advisors for wanting cheap trades. http://blogs.barrons.com/focusonfunds/2013/03/15/does-your-adviser-fear-fidelitys-redemption-fee-maybe-fear-your-adviser-instead/

But it seems advisors get blamed coming and going. If they buy and hold they are considered sitting pigeons to the 2008-like events and if they trade, they are market timers.

Brooke


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