October 15, 2019
Chairman and CEO of BlackRock, Larry Fink LUDOVIC MARIN/AFP/Getty Images
The race to zero commissions at discount and electronic brokerage firms will boost sales of exchange-traded funds, according to executives at BlackRock, the world’s biggest money manager.
BlackRock Chairman and Chief Executive Larry Fink said on an earnings conference call Tuesday that the company expects to benefit as more retail investors deploy cash from bank accounts and money-market products into ETFs they can trade for free at Charles Schwab, Fidelity Investments, TD Ameritrade, E*Trade and other online brokerage firms that cut commissions to zero in recent weeks.
“A commission-free in the fixed income realm, cash and fixed income is a real opener for so many more participants,” he said.
BlackRock’s ETF family, the industry’s largest by sales, attracted $41.5 billion in new money during the third quarter—up 15% from this year’s second quarter—as investors flocked to fixed income, core, factor and sustainable ETFs.
In the week since Schwab and Interactive Brokers announced zero commissions, ETF flows from RIA customers and direct investors have accelerated, BlackRock President Rob Kapito said on the call.
“Our share on the e-broker platform has expanded since the commission-free trends began and these segments are becoming a larger growth engine for BlackRock overall,” he said. “We’re confident this will increase the number of investors using iShares as an essential part of their portfolios.”
Asked by an analyst whether the move of self-directed investors into ETFs will motivate BlackRock to stop paying broker-dealers distribution fees for shelf space, Fink said the company has no plans to pull away from Fidelity, which lists about 250 iShares ETFs on its commission-free ETF platform.
“Our relationship with Fidelity is unchanged, if that’s what you’re trying to allude to, related to what we pay them,” Fink said, noting that the relationship goes “way beyond ETFs.”
He did not address other firms, and a BlackRock spokeswoman declined to comment on them.
BlackRock’s revenue in the July-September period grew 3% from the previous year’s third quarter, driven by higher fees from investment advisory, administration and securities lending and by a 30% jump in technology services revenue. But net income fell 8% on declining sales of alternative and long-only equity product sales, and a continuing investor shift to low-cost index, fixed income and cash products.
The asset management giant ended the third quarter with $6.96 trillion of assets under management, up from $6.44 trillion one year earlier.
Investment advisory, administration fees and securities lending revenue increased $97 million from a year ago, while performance fees were off from the year-earlier quarter by $30 million.
Technology services generated $259 million of revenue during the quarter, on increased sales of asset-aggregation and modeling software Aladdin and contributions from French software firm eFront that BlackRock bought in May. The tech services unit, which BlackRock views as a “strategic differentiator” to drive its revenue, represented 7% of BlackRock’s total revenue.
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