Fidelity Strengthens ETF Market Hold With Revenue-Sharing Agreements

Fidelity Investments has made significant strides in the ETF sector by securing new revenue-sharing agreements with several ETF managers. Notably, this move comes amid a backdrop of growing investor interest in ETFs and reflects Fidelity’s strategy to bolster its position in this competitive market.

Meanwhile, the agreements aim to enhance Fidelity’s brokerage platform while potentially impacting the cost structure for ETF managers and investors alike.

Fidelity Revolutionizes ETF Market With Revenue-Sharing Agreements

Fidelity’s recent push to establish revenue-sharing agreements with ETF managers has caused a stir in the asset management industry. These agreements, involving nine ETF issuers, emerged as a response to Fidelity’s proposed service fee.

If managers opted out of the revenue-sharing arrangement, their investors faced a potential surcharge of up to 5% of their buying position, capped at $100. This fee was designed to cover Fidelity’s costs for servicing operations and technology upgrades.

Meanwhile, according to a recent report, David Young, CEO of Regents Park Funds, described the situation as a “big undertaking,” noting that the decision of Fidelity to pursue revenue-sharing was driven by the need to balance platform maintenance costs. For Young’s firm, joining the agreement was crucial to avoid the prohibitive service fee.

However, he expressed concerns that such agreements are “hammering” the profit margins of smaller ETF managers. This highlights the financial strain that these arrangements might place on firms with limited resources.

Notably, the ETF market, with around $9 trillion in U.S. assets, has grown rapidly, necessitating new approaches for platforms like Fidelity to manage the influx of ETFs. Andrew Beer, co-founder of DBi, emphasized that while revenue-sharing is common in broader wealth management, it’s relatively new in the booming ETF sector.

Also Read: Here’s How Many Bitcoin (BTC) BlackRock Now Holds Through IBIT

Impact on the ETF Landscape

The implementation of revenue-sharing agreements by Fidelity marks a pivotal shift in the ETF industry. While such arrangements provide a way for platforms to recover operational costs, they also pose challenges for ETF managers. Smaller firms, in particular, might struggle to absorb the additional costs, potentially leading to increased fees on new ETFs or even the inability to sustain their business on Fidelity’s platform.

The surge in ETF popularity underscores the urgency for platforms like Fidelity to adapt. U.S.-listed ETFs saw inflows of over $320 billion this year through May, according to reports. This reflects the growing preference among investors and financial advisers for ETFs as a key investment vehicle.

Having said that, Fidelity’s U.S. Spot Bitcoin ETF FBTC has gained notable traction from the crypto market enthusiasts. As per reports, Fidelity’s FBTC has recorded an inflow of $9.57 billion since its launch on January 11, while noting a highest single-day inflow of $473.4 million.

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