BlackRock Inc (BLK.N) said it would cut prices on some U.S. iShares exchange-traded funds (ETFs) before a new U.S. Labor Department rule governing retirement products takes effect.
The world's largest asset manager lowered fees on 15 funds in its "Core" U.S. ETF lineup, touting the move as a boon for financial advisers and brokers who will soon be governed by regulations seen favoring inexpensive investments.
The change, which affects 23 percent of iShares $937 billion in U.S. assets, brings some fees down by 2 to 5 basis points and may help the leading ETF issuer better compete with low-cost rivals who are growing in its market, analysts said.
"When you have to justify your investment recommendations to, potentially, a judge, overpaying is indefensible," said Dave Nadig, FactSet Research Systems Inc's (FDS.N) director of ETFs, who sees the fee reductions as "great news for investors."
Management fees on their flagship iShares Core S&P 500 ETF (IVV.P) will fall to 4 basis points annually from the current 7 basis points. One basis point equals 0.01 percent.
A rule announced by the Labor Department (DoL) in April and effective next year sets a so-called fiduciary standard for financial brokers who sell retirement products, requiring them to put clients' best interests ahead of their own bottom line.
The language in the new rule is tougher than an existing rule that only requires brokers to ensure products are "suitable."
"Until this morning iShares would rarely win a heads up battle with a very fee-conscious advisor or compliance shop. Now they can," Nadig added.
BlackRock's iShares unit has faced intense competition from Vanguard Group and Charles Schwab Corp (SCHW.N). Both came later to the ETF business and have been quick to cut costs. Other companies have cut fees, too, including a similar step by Fidelity Investments in June. (bit.ly/2cRzTdR)
The average Vanguard stock ETF charges 0.09 percent, compared with Schwab's 0.18 percent and iShares' 0.40 percent, according to Thomson Reuters Lipper, a research service.
By its own account, iShares dominant ETF franchise has lost market share this year, while Vanguard and Schwab gained.
Yet all three are profiting as investors have moved money from active stock and bond-picking managers to index funds. And BlackRock has pulled in nearly 40 percent of the $160 billion pulled in by U.S. ETFs alone this year, according to FactSet.
"This is another critical milestone to help advisors as they prepare for the major shift the DoL fiduciary rule requires," BlackRock's U.S. wealth advisory chief Salim Ramji said in a statement.
(Reporting by Trevor Hunnicutt in San Francisco; Additional reporting by Subrat Patnaik in Bengaluru; Editing by Amrutha Gayathri, Alan Crosby and David Gregorio)