The New ETF Transaction Fee Popping Up in Some Brokerage Accounts

Over the last few years, most of the brokers we review have slashed their commissions on ETFs to zero, but the trend toward lower fees may be reversing.

Fidelity now charges investors a “service fee” to buy ETFs created by certain issuers. Fidelity has been asking ETF issuers to pay it a fee, and if an issuer doesn’t pay, investors have to pick up the tab via a transaction fee when buying that issuer’s ETFs on Fidelity.

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

They’re not the only brokers that appear to be moving toward a business model where they collect a back-end fee from ETF issuers, and introduce consequences for non-payers that could affect retail investors who want to buy those 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 doesn’t include any popular index funds from, say, Vanguard, State Street or BlackRock (the issuer of the iShares series of ETFs). Instead, it’s a fairly niche group of themed ETFs from smaller, lesser-known issuers like Roundhill and LifeX.

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

In short, if an ETF issuer doesn’t pay a fee to Fidelity, investors have to pay Fidelity a fee to buy ETFs created by that issuer.

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

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

Schwab might also introduce service fees on some ETFs soon, under terms like Fidelity’s. Last year, RIABiz reported that Schwab was considering charging investors “about $100” to buy ETFs if the issuers of those ETFs did not hand over 15% of their fee revenues to the broker[0]

The $100 charge for investors is unconfirmed, although Schwab CEO Richard Wurster did allude to 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 bespoke, conversations with asset managers regarding platform fees. These discussions are expected to take place throughout this year, with implementation taking effect no later than Q1 2027,” the statement said.

That “implementation” could involve investors paying service fees to buy ETFs offered by non-paying issuers on Schwab, like those charged by Fidelity. When asked a follow-up question, the spokesperson would not confirm or deny that Schwab would start charging such 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 charge of $150,000, according to a publicly available document on the bank’s website[0]

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

In other words, Morgan Stanley (and potentially its subsidiary, E*TRADE) may disallow its clients from buying ETFs from issuers that don’t pay the back-end fee. However, we have not found any evidence that E*TRADE excludes any ETFs from its platform for this reason.

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

Similarly, a person familiar with J.P. Morgan’s investing platform practices confirmed to NerdWallet on background that J.P. 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 or not J.P. Morgan may exclude non-paying ETFs from its investment platforms.

This means that there is a possibility that certain non-paying ETFs could be made unavailable for J.P. 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, given that the trend among brokers over the last decade has been to lower or eliminate transaction fees on stocks and ETFs.

But brokers need to make money somehow, and they’ve lost a source of revenue as they’ve slashed stock and ETF commissions to zero.

According to a February research note from J.P. Morgan, many brokers are hoping to replace that revenue with back-end fees paid directly by ETF managers, who collect tens of billions of dollars per year via ETF expense ratios. The note, as reported by Reuters, projected that brokers may skim 10% to 20% of ETF expense ratio revenue in the coming years[0]

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

A big part of the appeal of ETFs is that they’re portable between investment platforms, just like stocks. At least one institution — Morgan Stanley — reserves the right to exclude ETFs launched by nonpaying issuers from its investment platforms, such as E*TRADE. J.P. Morgan may also reserve that right. But other brokers seem reluctant to take this step.

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

We may see more of it in the years ahead, as brokers try to replace their lost commission revenue with behind-the-scenes fees charged to reluctant ETF issuers.

So in the end, the death of commissions may give rise to a new type of ETF transaction fee that looks an awful lot like a commission.

NerdWallet has reached out to every broker we review and asked them if they charge a back-end ETF fee. If the answer is yes, we have asked them whether there are any consumer-facing disincentives for ETF issuers who don’t pay, such as transaction fees for investors or potential exclusion from investment platforms.

In our analysis, brokers that have confirmed that they do not charge a back-end ETF fee are the least likely to introduce a consumer-facing transaction fee or platform ban on any ETFs in the foreseeable future. Below is our list of where the brokers we review stand on this issue.