Fidelity's fee increase creates opportunity for Schwab and Interactive Brokers
Dec. 12, 2020 6:05 PM ET The Charles Schwab Corporation (SCHW) By: David Jackson, SA News Editor 24 Comments
An asset manager (source withheld for confidentiality) sent the following letter to its separately managed account clients:
"Dear [client],""Starting on Jan 1st, your Fidelity accounts which we manage will each be charged a quarterly custodial fee of $42.50 by Fidelity."
"The background for this development is that in November 2019, Fidelity reduced standard ETF commissions from $4.95/trade to $0/trade, in response to a similar move by Charles Schwab. Fidelity is something of an exception among low-cost brokerages in not selling client order flow, and because of this, we speculated in our Q4 2019 investor letter they may find the current model of no custody fees and no commissions unsustainable."
"We have been considering for some time establishing a custody relationship with Charles Schwab to give our clients more choice. In recent months, we've evaluated Schwab's platform and believe that it's a high-quality offering roughly equal to Fidelity's. In addition, Schwab has publicly committed to not introducing custody fees on managed accounts. We will keep you posted as we develop a relationship with Schwab, and anticipate we'll be able to offer clients the choice between Schwab and Fidelity in the near future."
"As always, if you have any questions about your accounts or your investing, please feel free to let us know and we'll be happy to discuss. Yours, [asset manager]"Fidelity is one of the largest platforms providing separately managed accounts to asset managers. The letter from this asset manager is presumably not unique; other asset managers will also be forced to inform their clients about Fidelity's January 1st fee increase, and offer an alternative to Fidelity.
This letter mentions Schwab (NYSE: SCHW) as an alternative. Interactive Brokers (NASDAQ: IBKR) is another provider of separately managed accounts to asset managers.
The letter mentions that Fidelity is unusual in not selling order flow, in contrast to Robinhood, Schwab, E*Trade and Ameritrade. Piper Sandler has provided details about the revenue per 100 shares they receive from payments for order flow. |
