BlackRock Cuts ETF Fees

The world's largest money manager is cutting fees at more than a dozen exchange-traded funds, another sign of how a federal overhaul of retirement-savings rules is transforming parts of the financial-services industry.

The move by BlackRock Inc. covers $216 billion in assets and will lower expenses below or on par with those offered by low-cost pioneer Vanguard Group and Boston rival State Street Global Advisors. BlackRock's price reductions affect 15 ETFs within its iShares business, trimming the cost of widely used funds like the iShares Core S&P 500 ETF to 0.04% from 0.07% and the iShares Core U.S. Aggregate Bond ETF to 0.05% from 0.08%.

The New York asset manager is betting that low-cost funds that mimic the performance of the market will become bigger staples within retirement accounts in the coming years because of new Obama administration regulations requiring brokers to put the interests of retirement savers ahead of their own.

"We believe the rule will have as big an impact for the wealth-management industry as Dodd-Frank had on banks," said BlackRock Chief Executive Laurence Fink, referring to a regulatory overhaul passed after the last financial crisis designed to reduce risk taking on Wall Street.

The Labor Department's new fiduciary rule, set to take effect in April, holds advisers who work with tax-advantaged retirement savings to a "fiduciary" standard, meaning they must work in the best interest of their clients and generally avoid conflicts. Previously, advisers were required to offer only "suitable" guidance, a less-rigorous standard.

The changes are widely expected to be a boon for passively managed index funds that track markets instead of trying to beat them. Those funds are typically cheaper than funds run by managers who bet on individual stocks and bonds. Fund-research firm Morningstar Inc. expects the rule could push as much as $1 trillion into passive investments.

Some brokerage firms already have unveiled changes to how they handle retirement products, including a smaller lineup of funds and alterations of longstanding pricing structures.

BlackRock's discounts affect a small portion of its $4.9 trillion in assets under management. But the cuts apply to about 18% of its $1.3 trillion in iShares assets.

Mark Weidman, the global head of iShares, said the firm wants its S&P 500 ETF, which goes head to head with similar products at Vanguard and SSGA, to be "the biggest ETF in the world."

It has $79.3 billion in assets, leaving it more than $100 billion short of SSGA's SPDR S&P 500 ETF, the world's largest ETF.

SPDR S&P 500 ETF has about $197 billion in assets and a net fee of 0.0945%.

The discounts are part of a broader reduction in the price of investing as firms increasingly undercut each other on price and fight for price-sensitive clients. Over the last 12 months, $437.3 billion has flowed into passive funds, according to Morningstar, while investors have yanked $303.34 billion from actively managed funds.

Another BlackRock rival, Fidelity Investments, which has a distribution partnership with BlackRock for the ETFs affected by the price change, reduced prices on a set of its own funds in June. Charles Schwab Corp., another large ETF provider that has cut prices in recent years, has a strategy of matching fee reductions made by rivals.

BlackRock executives say investors that use the types of funds affected by Wednesday's price cuts are more likely to buy other ETFs and actively managed funds. The firm expects financial advisers to increasingly use ETFs in lieu of individuals stocks and bonds.

Write to Sarah Krouse at [e-mail]

(END) Dow Jones Newswires

October 05, 2016 01:25 ET (05:25 GMT)

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