ETF price war escalates as BlackRock fires broadside at rivals

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The cut-throat price war between US exchange traded fund providers escalated on Wednesday after BlackRock fired another broadside at rival managers by reducing fees across its US iShares core ETF range.

The world’s largest fund manager cut expense ratios on 15 US listed iShares ETFs by up to 5 basis points, reducing annual fees to between 4bps and 14bps from a previous range of 7bps to 16bps, writes the FT’s Chris Flood.

Competition on pricing between ETF managers in the US has become ferocious with BlackRock, Vanguard, Charles Schwab and State Street Global Advisors all exchanging punch and counterpunch in an effort to win market share.

BlackRock said it was cutting fees ahead of the introduction of new US regulations designed to improve standards across America’s gargantuan pensions industry.

The US government plans to put an end to hidden fees and conflicts of interest in the pensions market with the introduction of a “fiduciary rule” for retirement advisers.

This will require financial professionals to put their clients’ interests before their own when selling retirement products, a reform that the US government believes could lead to cost savings of $17bn a year for American workers and retirees.

ETF managers expect demand for their products from retirement advisers to increase once the new regulations come into force as fees for ETFs are lower than for actively managed mutual funds.

“A new era is dawning for advisors and long-term investors of all kinds. To meet this historic shift, we aim to set a new market convention for core investing and long-term investors,” said Mark Wiedman, Global Head of iShares.

BlackRock’s latest fee cuts come at an important time in the race this year for investors’ cash against its biggest rival Vanguard.

Between January and August, BlackRock’s iShares ETF business in the US attracted $53.9bn in net new inflows, according to ETFGI, a data provider.

However, Vanguard has performed slightly better, gathering $55.9bn over the same period.

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