US brokers may charge fee from ETF managers as commission-free trading takes a toll

By Siddarth S

Feb 3 (Reuters) - U.S. brokerage firms and custodians whitethorn question organisation fees from managers of exchange-traded funds, J.P. Morgan said, marking a ​possible important displacement successful the country's $13.5 trillion ETF market.

The U.S. marketplace implicit the ‌past decennary has seen the emergence of caller fintech firms that introduced commission-free trading, disrupting established Wall ‌Street concern models.

Platforms specified arsenic Robinhood attracted millions of retail investors with zero trading fees and elemental mobile apps, pulling customers and trading measurement distant from accepted brokerages.

To combat the displacement successful the competitory landscape, bequest players specified arsenic Fidelity and Charles Schwab person raced ⁠to triumph implicit clients by ‌slashing commercialized commissions to arsenic debased arsenic zero dollars for exchange-traded funds.

But the discounts person started to measurement connected gross arsenic investors ‍move successful ample numbers from communal funds into ETFs. This could punctual brokers to complaint organisation fees arsenic they effort to retrieve gross mislaid to zero-commission trading and the determination distant from ​mutual funds.

J.P. Morgan estimates the U.S. ETF absorption interest excavation to beryllium $21 billion, with ‌brokers targeting 10% to 20% of full disbursal ratios - the yearly outgo of moving a money - implying $2 cardinal to $4 cardinal a twelvemonth successful caller organisation costs.

"This is an important inaugural for fiscal intermediaries arsenic the migration of communal money assets to ETFs has been a costly modulation pursuing the migration to $0 trading commissions implicit the past 10 ⁠years," J.P. Morgan said successful a enactment connected ​Monday.

"We besides spot a greater consciousness of urgency ​for custodians and brokers fixed the imaginable for SEC regularisation changes to accelerate the tax-free modulation from funds to ETFs."

While the largest publically traded ‍ETF managers including BlackRock, ⁠Invesco, Franklin and Janus are each apt to spot a higher organisation fee, the interaction is apt to beryllium uneven, J.P. Morgan said.

Big players specified arsenic ⁠BlackRock and Vanguard could beryllium amended positioned to negociate the fees, portion mid‑sized managers similar Invesco could ‌face greater pressure, it added.

(Reporting by Siddarth S; further reporting by Manya ‌Saini successful Bengaluru; Editing by Maju Samuel)