BlackRock Inc. (BLK) , one of the world's top money-management firms, is cutting fees by up to 5 basis points across its core iShares exchange-traded funds (ETFs) range.
BlackRock introduced the new standard for core investing to help financial advisers transition to the new fiduciary rule put out by the Department of Labor in April. The new rule, which places a greater emphasis on costs within financial advisers' portfolios, requires the advisers to increasingly put their clients' interests before their own when selling retirement products. It will come into full effect in April, 2017.
The fee cuts would affect 15 of its iShares exchange-traded funds including some widely used funds such as the iShares Core S&P 500 ETF and the iShares Core U.S. Aggregate Bond ETF.
Although it seems like the move is mainly driven by DOL's new retirement rule, some believe that BlackRock, which has $4.9 trillion in assets under management, is determined to win more market share in an ongoing ETF price war among its competitors: Vanguard Group, the low cost leader in the ETF industry, and Boston-based State Street Global Advisors (STT) .
"We brought ETFs and active management together in 2009. In 2012, we launched the iShares Core to serve long-term investors looking for great value at the center of their portfolios. Since then, individual and institutional investors have adopted iShares Core ETFs faster than we imagined. We expect this trend only to quicken."
"Because of this retirement rule overhaul, I think a lot of the retirement savings money will flow out of active management mutual funds, which require fees, into these low-cost funds which attract a lot of market," said Neena Mishra, director of ETF Research at Zacks Investment Research, who believes that BlackRock will also see a lot of cash inflows as a result of this fee reduction.
As federal regulations of retirement savings start to shift the financial services industry, financial advisers are sharpening their focus on the quality and cost-efficiency of funds.
Some experts in ETF fund research believe that investors ultimately stand to benefit the strong market competition when products compete based on cost and quality.
"One of the reasons is that the Department of Labor's conflict of interest rule will put additional pressure on advisors to better rationalize the products they recommend and use when constructing clients' portfolios," said Micah Hauptman, Financial Services Counsel at the Consumer Federation of America.
"In other parts of the market, however, most notably the broker-sold fund space, there isn't strong market competition. Funds don't compete based on cost and quality, they compete based on how much funds compensate brokers to recommend them. The Department of Labor's conflict of interest rule will have the greatest impact on this part of the market, creating the necessary market competition that ultimately benefits investors."
The company did not comment on how the November election will affect the new DOL rule but revealed that BlackRock will put out a market outlook specific to the election soon.
"A new era is dawning for advisors and long-term investors of all kinds. To meet this historic shift, we aim to set a new market convention for core investing and long-term investors," said Mark Wiedman, Global Head of iShares at Blackrock in a statement released early Wednesday.