Fidelity's main revenue comes from fees on accounts and trades

Fidelity makes money in several ways, but the largest source is fees charged directly to customers. When you open a brokerage account, buy and sell stocks, or hold investments with Fidelity, you pay fees. These fees come in different forms depending on what you do: some accounts charge annual maintenance fees, some trades carry per-transaction costs, and some investment products charge a percentage of the assets you hold with them.

The company also earns money from services beyond basic investing. Fidelity runs retirement accounts like IRAs and 401(k)s, manages mutual funds and exchange-traded funds (ETFs), and offers advisory services where financial advisors help you plan. Each of these services generates revenue through different fee structures.

Key Takeaways

  • Fidelity charges account fees, trading fees, and asset management fees that vary based on the type of account and service you use.
  • The company earns money from the spread between what it pays depositors for cash balances and what it charges borrowers, similar to how banks work.
  • Fidelity generates significant revenue from managing mutual funds and ETFs, where it charges a percentage of assets under management.
  • The company also profits from advisory services, retirement plan administration, and lending products like margin accounts and mortgages.

Account and trading fees that customers pay directly

Many Fidelity accounts charge an annual maintenance fee if your balance falls below a certain threshold—typically $2,500 for standard brokerage accounts, though this varies by account type. If you keep your balance above that minimum, the fee is waived. Some accounts, like certain retirement accounts, may have different minimums or no minimum at all.

When you buy or sell stocks and ETFs through Fidelity, the company charges a commission per trade. For many customers, stock and ETF trades are commission-free, but options trades and some other transactions may carry a fee. Mutual fund purchases sometimes include sales charges called loads, which go partly to Fidelity and partly to the fund company.

Fidelity also charges fees for specific services: wire transfers, account transfers from other brokers, expedited processing, and paper statements all carry small fees. These add up across millions of customers and represent a steady revenue stream.

Money from the difference between deposit rates and lending rates

Fidelity holds customer cash in money market funds and sweep accounts. The company earns the difference between what it pays you on that cash and what it earns by lending that money out or investing it. This is called the spread, and it works the same way a bank profits from deposits.

When interest rates rise, Fidelity can charge borrowers more while paying depositors less, widening the spread and increasing profit. When rates fall, the spread narrows. This is why Fidelity's profitability fluctuates with interest rate cycles—a period of high rates is more profitable than a period of low rates.

The company also offers margin accounts, where customers can borrow money to buy investments. Fidelity charges interest on borrowed funds, and this lending revenue grows when more customers use margin and when interest rates are higher.

Asset management fees from mutual funds and ETFs

Fidelity manages hundreds of mutual funds and ETFs under its own brand. When you own shares in a Fidelity fund, you pay an annual expense ratio—a percentage of your investment that covers the fund's operating costs and Fidelity's profit. These ratios range from very low (under 0.10% per year for some index funds) to higher amounts (1% or more for actively managed funds).

Because Fidelity manages billions of dollars in these funds, even a small percentage fee generates enormous revenue. A 0.50% fee on $100 billion in assets equals $500 million in annual revenue from that single source. Fidelity has strong incentive to attract more money into its funds, and the company advertises them heavily to its brokerage customers.

The company also earns money when it acts as a custodian for other investment firms' funds. Fidelity holds the assets and handles the administrative work, charging a fee for that service.

Advisory and wealth management services

Fidelity offers financial advisory services at different price points. Some customers pay a flat fee for a one-time financial plan. Others pay an ongoing percentage of assets under management (called an AUM fee), typically ranging from 0.25% to 1.00% per year depending on account size and service level. Larger accounts usually pay lower percentages.

The company also manages retirement plans for employers—401(k)s, pension plans, and similar accounts. Fidelity charges employers and sometimes employees for administering these plans, including record-keeping, compliance, and customer service. With millions of workers in Fidelity-managed retirement plans, this is a major revenue source.

Lending products and other financial services

Beyond margin lending, Fidelity offers mortgages, personal loans, and home equity lines of credit. The company earns money through interest on these loans and origination fees charged upfront. When you take out a mortgage through Fidelity, the company profits from the interest you pay over the life of the loan.

Fidelity also offers credit cards and debit cards, earning fees from merchants when you swipe and from the card networks. The company provides insurance products in partnership with other insurers, earning commissions on policies sold. Each of these services contributes to overall revenue, though they are smaller than the core brokerage and asset management business.

How Fidelity compares to other investment firms

Most large investment firms use the same basic revenue model as Fidelity: account fees, trading fees, asset management fees, and the spread on customer cash. The main difference is in how much each firm charges and which services it emphasizes. Some competitors charge higher trading fees but lower account minimums. Others focus heavily on advisory services rather than self-directed investing.

Fidelity's size gives it an advantage: it can spread costs across millions of customers, allowing it to offer competitive fees while still remaining profitable. Smaller firms often charge more because they have fewer customers to share expenses with. The company's diverse revenue streams—brokerage, funds, advisory, retirement plans, and lending—also reduce dependence on any single source, making it more stable during market downturns.

Frequently Asked Questions

Does Fidelity make money if I don't trade?

Yes. Even if you never buy or sell, Fidelity earns money from your account through annual maintenance fees (if your balance is below the minimum), the spread on any cash you hold, and advisory fees if you use those services. The company also profits from mutual fund and ETF expense ratios if you own those products.

Why does Fidelity offer commission-free stock trading if it loses money on trades?

Fidelity doesn't lose money on commission-free trades because it profits from other sources: the spread on customer cash, account fees, mutual fund fees, and advisory services. Commission-free trading attracts customers who then use these other services, making the company money overall. It's a strategy to build customer relationships rather than profit on each individual trade.

Are Fidelity's fees higher or lower than competitors?

Fidelity's fees are competitive but not always the lowest. Account minimums and maintenance fees are similar to other major brokers. Expense ratios on Fidelity mutual funds vary widely—some are very low, others are higher than comparable index funds at competitors. Advisory fees are in the standard range. The best choice depends on which services you use most.

Does Fidelity make money from my 401(k) if I'm not the account owner?

Yes. Your employer pays Fidelity to administer the plan, and sometimes employees are charged fees as well. These fees cover record-keeping, customer service, and compliance. Fidelity also profits from the spread on any cash in the plan and from expense ratios if the plan offers Fidelity-managed funds.

What happens to Fidelity's profits when the stock market drops?

Market downturns reduce some of Fidelity's revenue—fewer trades mean lower trading fees, and asset management fees decline when account values fall. However, the company still earns money from account fees, the spread on cash, and advisory services. Fidelity's diverse revenue streams help it weather market volatility better than firms that depend heavily on trading volume.