The New ETF Transaction Fee Popping Up in Some Brokerage Accounts

Over the past few years, most brokers we’ve reviewed have slashed their commissions on ETFs to zero, but the trend is changing.

Fidelity now charges investors a “service fee” to buy ETFs made by certain issuers. Fidelity requires ETF issuers to pay it a fee, and if an issuer doesn’t pay, investors must pick up the tab through a transaction fee when buying Fidelity’s issuer ETFs.

Charles Schwab is moving toward requiring a similar back-end fee for ETF issuers, and may be preparing to begin charging transaction fees to investors in ETFs from non-paying issuers.

They are not the only brokers who appear to be moving towards a business model where they collect a back-end fee from ETF issuers, and introduce consequences for non-payers that may affect retail investors who want to buy ETFs.

Here’s what to know about ETF service fees.

Fidelity charges a 5% fee (capped at $100) on purchases of more than 100 ETFs. The list does not include any popular index funds from, say, Vanguard, State Street or BlackRock (the issuer of the iShares series of ETFs). Instead, it’s a relatively niche group of themed ETFs from smaller, lesser-known issuers like Roundhill and LifeX.

The list of ETFs with service fees is available as a PDF on Fidelity’s website. That PDF explains that the fee applies to “ETFs offered by providers who do not pay Fidelity a direct, asset-based fee to support the availability of their ETFs on our broker platform, including support for shareholder support services, the provision of calculation and analytical tools, and general investment research and educational materials about ETFs⁽⁰⁾

In short, if an ETF issuer does not pay Fidelity a fee, investors must pay Fidelity a fee to buy the ETFs produced by the issuer.

In an emailed statement to NerdWallet, a Fidelity spokesperson said that Fidelity has engaged in “constructive dialogue” with issuers to “reach outcomes that reflect a more consistent approach to mutual funds and ETFs.”

In other words, ETFs that are currently on the service fee list can get off the list if their issuers reach an agreement with Fidelity on back-end fees.

Schwab may also introduce service fees to some ETFs soon, under terms similar to Fidelity’s. Last year, RIABiz reported that Schwab was considering charging investors “about $100” to buy ETFs if the issuers of the ETFs did not hand over 15% of their earnings in fees to the broker.⁽⁰⁾

The $100 fee for investors has not been confirmed, although Schwab CEO Richard Wurster discussed a plan to collect fees from ETF issuers in Schwab’s most recent earnings call.⁽⁰⁾

“As our ETF platform grows in scale and sophistication, we have begun thoughtful, often tailored, conversations with asset managers about platform fees. These discussions are expected to take place throughout the year, with effective implementation no later than Q1 2027,” the statement said.

That “implementation” could include investors paying service fees to buy ETFs offered by Schwab’s no-fee issuers, such as those charged by Fidelity. When asked a follow-up question, the spokeswoman would neither confirm nor deny that Schwab would begin charging those fees.

Morgan Stanley, the parent company of E*TRADE, also charges ETF issuers a back-end “data licensing fee” of $10,000 per fund per year, with a minimum payment of $150,000, according to a document publicly available on the bank’s website.⁽⁰⁾

“At our discretion, Morgan Stanley may choose (i) not to offer new ETFs launched by ETF sponsors that do not agree to pay the Fee, or (ii) not to approve a new ETF sponsor for the sale of its ETFs on our platform,” the document said.

In other words, Morgan Stanley (and possibly its subsidiary, E*TRADE) may not allow its clients to purchase ETFs from issuers that do not pay a back-end fee. However, we did not find any evidence that E*TRADE excluded any ETFs from its platform for this reason.

E*TRADE does not plan to introduce investor-facing service fees to ETF issuers that do not pay the fee, according to a person familiar with E*TRADE’s plans who spoke to NerdWallet on background.

Similarly, a person familiar with JP Morgan’s investing platform practices confirmed to NerdWallet in the background that JP Morgan does not charge investors transaction fees for ETFs that do not participate in its “revenue share” program. However, the person declined to comment on whether JP Morgan might exclude non-paying ETFs from its investment platforms.

This means that there is a possibility that some non-paying ETFs may be made unavailable for JP Morgan Self-Directed Investing customers, although NerdWallet has not found any evidence of any ETFs being excluded from the platform for that reason.

These moves from Fidelity and possibly Schwab may come as a surprise, since the trend of brokers in the last decade has been to lower or eliminate transaction fees for stocks and ETFs.

But brokers have to make money somehow, and they’ve lost a source of income because they’ve broken stock and ETF commissions to zero.

According to a February research note from JP Morgan, many brokers hope to replace that income with back-end fees paid directly to ETF managers, who collect tens of billions of dollars annually through ETF expense ratios. The note, as reported by Reuters, projected that brokers could skim 10% to 20% of the ETF’s income to expense ratio in the coming years.⁽⁰⁾

But what does a broker do when it starts charging ETF issuers this kind of back-end fee, but some issuers simply refuse to pay it?

A big part of the appeal of ETFs is that they are portable between investment platforms, just like stocks. At least one institution – Morgan Stanley – has the right to exclude ETFs launched by defaulting issuers from its investment platforms, such as E*TRADE. JP Morgan may also reserve that right. But some brokers seem reluctant to take this step.

Those other brokers may see an investor-facing ETF service fee as a less powerful deterrent against non-payment of back-end issuer fees.

We may see more of this in the coming years, as brokers try to replace their lost commission income with behind-the-scenes fees paid to reluctant ETF issuers.

So finally, the death of commissions will lead to a new type of ETF transaction fee that looks an awful lot like a commission.

NerdWallet reached out to every broker we reviewed and asked them if they charge a back-end ETF fee. If the answer is yes, we ask them if there are any disincentives that consumers face for ETF issuers that do not pay, such as transaction fees for investors or potential exclusion from investment platforms.

In our analysis, the brokers proved that they did not payment of a back-end ETF fee is least likely to introduce consumer-facing transaction fees or platform restrictions on any ETFs in the near future. Below is our list of where the brokers we reviewed stand on this issue.