00:00Joining us now is Brittany Christensen, SVP Head of Business Development at Tidal Financial Group.
00:05And Brittany, this goes to the idea that Fidelity began doing this in November 2025, where it charges shell fees
00:12for certain ETFs, usually from smaller issuers.
00:15But now Schwab is doing the same. What's going on? What was the thinking behind this?
00:21Yeah, absolutely. You're right, Scarlett. ETF fees are going through a course correction.
00:25Active ETFs changed the product mix, but distribution economics didn't evolve alongside the active ETF growth.
00:34The industry needs scalable solutions, not manual processes that become more expensive as volume grows.
00:41And so I think ultimately, overall, we will see certain things come in the distribution fee structure that is a
00:48result of the growth of the industry and the pure man hours that go into essentially supporting 5,000 plus
00:55ETF products.
00:57All right. So for an issuer, the idea here is you need to give us a taste of the revenue
01:03or pay us to get shelf space.
01:05But for a user, let's go over through what this looks like, because let's say you're looking at maybe a
01:10not popular ETF.
01:12You're going to buy it. Fidelity is going to hit you with $100 trading fee unless the asset manager pays
01:18them.
01:18And how do you watch out for that? What would you tell a retail investor to watch out for here?
01:25I mean, I would tell the retail investor that it's going to become more important whose brand of ETF that
01:30you're using, right?
01:31And so understanding that there has been a lot of players who've negotiated revenue sharing agreements with Fidelity to prevent
01:38their ETFs from having that fee structure.
01:40But there are other ones out there, maybe smaller players or new ETF shops that haven't paid that structure yet.
01:47I think there's still ongoing conversations with both Fidelity and Schwab who are important parts of the ETF ecosystem regarding
01:54what we can do to not disincentivize some of the startup players entering the ETF space
01:59or having kind of newer funds maybe have a little bit more of a runway.
02:03But I do think it's interesting, Eric, that the SEC hasn't jumped in to protect any of the retail investors
02:09who are potentially exposed to some risk that they aren't entirely used to.
02:15Yeah, no, I agree. Because with the screenshot I saw, it looked like it was not clear you're going to
02:20pay this extra fee.
02:21So definitely. I also find it interesting that if you're like Vanguard and you're so popular, you can kind of
02:28just get a pass here, right?
02:29Like, is that what's happening to the bigger issuers? Like, even if they don't pay, they're just going to let
02:34them on because otherwise the platform would lose value if you don't have the big ones?
02:38I mean, I think that's partially what you're seeing, Eric.
02:40But I also think it's interesting to kind of follow some of the bigger issuers in launching their own proprietary
02:45products, right?
02:46So you're seeing BlackRock and State Street file for NASDAQ 100 ETFs, who's to say Fidelity and Schwab, who are
02:52in and of themselves their own issuers, don't do similar things, right?
02:57So I think that's still yet to play out if the big players will get by.
03:02What I do think will happen is that you're going to start to see the fee ranges of new product
03:06coming to market, baking this in, essentially giving them a bit of a, let's call it, more wiggle room to
03:11use to pay these fees.
03:13Whereas your legacy shops who've been in this space for a long time are sort of out of tools unless
03:18they start, you know, unless someone decides to trigger a 12B1 style response and be the brave ETF issuer to
03:25do that first.
03:26Oh, interesting. So it's not just the expense ratio people need to watch out for, but this $100 fee.
03:31And then in the future, maybe the expense ratio will kind of encompass this as well.
03:34Why now? Why did Fidelity choose to do this now and step it up?
03:38And why is Schwab following?
03:40I mean, what has changed for them to move forward with this?
03:44I mean, I think it's largely the migration of assets out of the mutual fund wrapper and into the ETF,
03:50right?
03:50It's ways they've used to monetize their distribution capabilities has been upgraded into the ETF wrapper, which didn't come with
03:58the same distribution payoff structure.
04:01And so I think where they're at is trying to understand, you know, we've had this massive reduction in our
04:07revenue numbers because of ETF growth.
04:09If we're not here to stand in the way of the ETF industry expansion, then how are we also going
04:14to be able to make up enough money to support it?
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