What Schwab's new ETF platform fees mean for clients, advisors

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• Key insight: Brokerages are replacing lost trading commissions with new fees for ETF providers. Charles Schwab now joins Fidelity Investments in doing so.
• Supporting data: Schwab is demanding platform fees equal to as much as 15% of the management fees currently collected by third-party ETF sponsors.
• Expert quote: "Schwab is charging its rivals for access to the very platform where it competes with them. Those rivals can accept thinner margins, raise prices or have their investors hit with a ticket fee, and each choice helps Schwab's own ETFs." — Tim Welsh, founder of Nexus Strategies

Charles Schwab is moving forward with plans to charge platform fees on third-party ETFs offered through its brokerage services, raising questions about how much of the costs will fall to advisors and their clients.

In a recently published disclosure, Schwab said it is charging providers of exchange-traded funds platform fees equal to as much as 15% of the management fees many already pay on ETFs and other products held at Schwab. Schwab confirmed in a statement that the new fees, first reported by the industry publication CityWire, took effect on Oct. 1.

"At Schwab, we remain focused on delivering investment solutions that meet the evolving needs of our clients and working alongside ETF sponsors, issuers, and other key market participants to support the ETF investing experience," a spokesperson said.  

Brad Wales, the founder of the consulting firm Transition to RIA, said there's a chance ETF providers like BlackRock, State Street Global Advisors and Invesco will simply pay the new platform fees out of their own pockets and accept the resulting reduction to revenue margins. More likely, though, they'll pass the costs on to investors.

Wales said advisors who use Schwab's brokerage services to put clients into ETFs could try to mitigate the new costs by lowering their own fees.

"But realistically, that's not how the world operates," he said.

Schwab acts as a custodian safeguarding client assets and provides other services to more than 16,000 RIAs through its Schwab Advisor Services division.

READ MORE: Schwab's long-short plans raise questions about competition 

The desire for new revenue sources in a commission-free world

Schwab's disclosure this month says that if ETF sponsors choose to pay the new fees using assets held in their own funds, the costs could be reflected in the funds' operating expense ratio. That ratio determines how much investors pay to hold a given ETF.

Schwab executives have for months signaled plans to charge new fees on ETF providers. In an earnings call in April, CEO Rick Wurster, "There are places where there are people operating on our platform, they're earning incredible margins, and we're bringing the client to them or we're doing the hard work, and we're not capturing our fair share." 

Schwab's decision to charge the new ETF fees follows Fidelity Investments' adoption of a similar policy in late 2024. Like Schwab, Fidelity charges up to 15% of the annual management fees paid by ETF providers.

The platform fees come largely in response to brokerages' desire for new resources of revenue after most stopped collecting commissions on individual trades of stocks, ETFs and other investments. Firms have also seen revenue sources dry up as investors have moved away from mutual funds, many of which still generate hefty fees, in favor of low-cost ETFs.

Tim Welsh, the founder of the consulting firm Nexus Strategies, noted that brokerages' lucrative business safeguarding clients' uninvested cash is meanwhile under threat from AI agents that could be programmed to move money into higher-yielding alternatives.

"With the cash windfall at risk, Schwab is putting a toll on the ETF shelf instead in the form of recurring, asset-based revenue," Welsh said.

READ MORE: How dual share classes could reshape the future of ETFs 

Schwab won't charge platform fees on its own ETFs

Schwab did not specify how much its new fees may vary and what factors will be considered when setting them. The fees, according to the spokesperson, "are established individually with each ETF sponsor and will be implemented as providers join the program."

"The amount, structure, and timing of the compensation vary by agreement and may include flat fees, asset-based fees based on the value of ETF assets held at Schwab, or other negotiated fee structures," according to a spokesperson. "Compensation agreements may differ across sponsors and products."

Schwab said in its disclosure that the new fees create to a conflict of interest by giving it a financial incentive "in establishing and maintaining" relationships with firms that pay them. ETFs provided by Schwab itself will meanwhile remain exempt from the fees.

Welsh said the arrangement gives Schwab an obvious advantage over other ETF firms.

"Schwab is charging its rivals for access to the very platform where it competes with them," he said. "Those rivals can accept thinner margins, raise prices, or have their investors hit with a ticket fee, and each choice helps Schwab's own ETFs."

READ MORE: How RIAs can beat the clock when leaving Fidelity custody 

What happens if ETF providers don't pay?

Some large ETF providers, most notably Vanguard and Dimensional Fund Advisors, are well-known for refusing to pay revenue-sharing fees to brokerage firms that help distribute investment products. It wasn't clear immediately how Schwab would handle firms that reject its new platform fee.

Welsh predicted, "the giants like Vanguard and iShares will negotiate from strength, and the boutiques will pay."

At Fidelity, ETF providers who refuse to pay asset-based fees now see their end investors charged 5% of what they put into individual funds using its brokerage services, up to a maximum of $100 a transaction. Fidelity lists hundreds of ETFs it charges service fees on. Many come from smaller providers like Roundhill Investments and Corgi Invest.

Wales said the new fees on ETFs may not be popular among investors and clients, but they should come as little surprise.

Schwab, Wales said, "is not a charity."

"They have costs," he said. "They have to reinvest in the platform. They have an expectation to generate profit for their shareholders. So the revenue has to come from somewhere."

Introductory bullet points created by AI with editorial review.