Charles Schwab requires sponsors of semi-transparent exchange-traded funds to pay to be listed on the company’s platform, according to news reports.
While the fee varies, it’s typically 10 basis points annually on ETF assets the sponsors hold at Schwab, FA-IQ sister publication Ignites writes, citing a recent disclosure. In June, Schwab added language on its website disclosing that it collects fees for hosting semi-transparent ETFs for administrative services such as support and technology, shareholder communications, reporting and more, according to Ignites.
A Schwab spokesperson tells the publication that fund sponsors can decide for themselves whether the fee is paid from fund expenses or from firm revenue.
Schwab doesn’t collect the new fee on asset-based fees on transparent ETFs, the spokesperson confirms to Ignites.
That said, some ETF sponsors still opt to pay up to $750,000 a year for access to Schwab’s data, reports, education and events, Schwab’s website says, according to the publication.
Schwab also appears to be the first among distributors to tack on a revenue-sharing or platform fee on semitransparent ETFs, Ignites writes. Morgan Stanley plans to charge revenue sharing on actively managed ETFs, the company disclosed last year — but it doesn’t separate transparent and semitransparent ETFs, according to the publication.
Nonetheless, other platform providers will likely start adding fees for hosting semitransparent ETFs, similar to Schwab, to make up for lost revenue from mutual funds as assets leave them for ETFs, says Jeff Cerutti, founder of Rutti Consulting, according to Ignites.
At the same time, Schwab and other intermediaries will be able to get away with the revenue sharing and support fees on semitransparent ETFs due to the high operational and administrative costs involved, Dennis Gallant, senior analyst at Aite Group, according to the publication.
However, ETF sponsors may face challenges in paying the fees, in part because ETFs don’t typically come with 12b-1 fees, which is how many mutual funds pay for marketing and distribution, according to Gallant, Ignites writes.
And the SEC’s ongoing scrutiny of 12b-1 fees will likely keep sponsors from adding them to semitransparent ETFs, says Gwendolyn Williamson, a partner at Perkins Coie, according to the publication.
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