Two prominent financial institutions, Fidelity Investments and Charles Schwab Corp., have implemented a restriction on their platforms against investing in money-market exchange-traded funds (ETFs). This unusual step blocks clients from purchasing specific ETFs offered by BlackRock Inc. and Texas Capital, which track securities like Treasury bills. The move highlights the growing competition within the asset management sector as ETFs continue to expand and challenge traditional mutual-fund providers. Despite the surprise among some investors, these firms justify their decisions based on long-standing policies favoring in-house products.

Fidelity and Schwab's decision marks a significant shift in their approach to third-party offerings. These organizations typically permit easy access to various financial instruments through their trading platforms. However, they now prohibit purchases of certain money-market ETFs, including those launched by BlackRock and Texas Capital. This action underscores the increasing rivalry between established mutual-fund providers and newer ETF issuers. Both Fidelity and Schwab manage substantial assets in money-market funds, with Schwab recently filing plans for its own government money-market ETF.

The rationale provided by both companies reflects their commitment to promoting affiliated products. A spokesperson from Schwab explained that this aligns with their consistent strategy of offering only Schwab-affiliated money-market mutual funds. Similarly, Fidelity justified the restriction as an extension of their policy to limit third-party money-market mutual funds. This stance contrasts with their usual openness to other types of ETFs, even those competing with internal offerings.

Investors express disappointment over the restricted access to these innovative ETFs. Mike Younkman, CIO at Ankerstar Wealth, noted his dismay when Schwab shifted to a sell-only mode for Texas Capital’s MMKT ETF earlier this year. As a result, his firm had to adjust client portfolios back to short-term bond ETFs, causing operational challenges but not significantly impacting returns. Meanwhile, Texas Capital criticized Schwab and Fidelity's actions, emphasizing the importance of maintaining investor choice and accessibility.

BlackRock also voiced support for its iShares money-market ETFs, highlighting their role in providing professional-grade cash management strategies in a convenient ETF format. The popularity of money-market funds has surged in recent years due to the Federal Reserve's rate-hiking cycle, attracting substantial investor interest. Although the Fed has begun easing monetary policy, rates remain high enough to maintain strong inflows into money-market funds. With over $7 trillion in assets, these funds continue to attract significant attention.

This development reflects broader trends in the financial industry, where the growth of ETFs introduces new complexities and competition. While Fidelity and Schwab have traditionally facilitated easy listing of ETFs, recent changes indicate a shift towards more selective practices. This includes imposing new fees on some ETF firms and restricting access to certain products, surprising some investors who expected continued open access to innovative financial tools.