BlackRock cuts ETF fees ahead of new financial advice rule

Wed Oct 5, 2016 5:29pm EDT
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By Trevor Hunnicutt

(Reuters) - BlackRock Inc (BLK.N: Quote) 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: Quote) 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: Quote) 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.   Continued...

A man walks next to a BlackRock sign pictured in the Manhattan borough of New York, October 11, 2015.  REUTERS/Eduardo Munoz