Schwab joins BlackRock in ETF price war as providers ‘race to zero’
Source: MarketWatch
Schwab joins BlackRock in ETF price war as providers race to zero
Published: Oct 7, 2016 12:06 p.m. ET
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Major providers of exchange-traded funds have slashed prices recently, the latest salvos in a intensifying price war designed to lure customers by cutting expense ratios one basis point at a time. The frequency of the announcementsincluding two this week alonehas investors wondering how low fees can go.
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Schwabs fee cut follows discounts announced on Wednesday by BlackRock Inc. BLK, which cut prices on more than a dozen of its most widely used ETFs, known as the core funds of its iShares lineup. In many cases, the fees were brought just a single basis pointor 0.01%below similar funds offered by Vanguard, one of its chief rivals. Wells Fargo suggested the move was done to protect the market share of BlackRock, the largest money manager in the world, and that the cuts could erode the companys annual profit by 30 cents a share. (It reported earnings of $4.89 a share in 2015.)
The fee cuts come ahead of the Labor Departments fiduciary rule, which requires that financial advisers and brokers must act in the best interest of their clients, rather than recommending investments that may not be the cheapest or best option. This is expected to accelerate a longstanding trend toward the kind of low-fee index funds that have been the focus of these fee cuts.
Read: New rule may create a $10 trillion ETF juggernaut by 2020
The more investors favor passive investing over active management, the more competition exists among the big funds that offer similar products and must distinguish themselves on price. According to Wells Fargo, this week marked the 10th time that BlackRock had cut fees on its core series of funds in recent years.
Read more: http://www.marketwatch.com/story/schwab-joins-blackrock-in-etf-price-war-as-providers-race-to-zero-2016-10-07
What makes this LBN-worthy is that the slashing of fees is being brought about by new Department of Labor regulations.
Here's how the whole thing started:
Move is another indication of how new retirement rules are transforming industry
By Sarah Krouse
sarah.krouse@wsj.com
http://twitter.com/bysarahkrouse
Oct. 5, 2016 12:01 a.m. ET
The worlds 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. BlackRocks 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 Departments 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.
Ligyron
(7,592 posts)I'm writing a paper on BlackRock's parent company PNC Financial Services and this timely info will come in handy.
According to PNC's CEO Demchak, for quite some time now it's been the worst kept secret on Wall Street that PNC has been seeking a buyer for BlackRock.