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BlackRock Fires Latest Shot In Asset Manager Pricing War

Wayne Duggan

The fee pricing war among asset managers has reached a new level, with BlackRock, Inc. (NYSE: BLK) announcing this week that it is cutting the fees it charges institutional clients for its largest equity index mutual fund to its lowest level in history.

BlackRock said that starting in July, the $4 trillion asset manager will charge just $1.25 in annual fees for every $10,000 in G-class shares of its popular iShares S&P 500 Index Fund.  BlackRock previously charged $4 in annual fees for the same amount invested.

Fidelity started the pricing war last summer when it eliminated fees on two of its popular index mutual funds. Since then, eight different asset managers have reduced fees on popular funds, including JPMorgan Chase & Co (NYSE: JPM) and Vanguard.

BlackRock has said the new ultra-low fee applies only to the G class of the iShares S&P 500 Index Fund. BlackRock’s popular iShares S&P 500 Index (NYSE: IVV) ETF will continue to charge an annual fee of $4 per $10,000 invested. The IVV fund has $170 billion in assets.

Stock And Awe

In February, SoFi joined Fidelity in waiving fees for a pair of its funds. Last week, J.P. Morgan cut fees on one of its funds to just 20 cents for every $1,000 invested.

Earlier this week, the war was taken to an unprecedented level when Salt Financial announced a promotional deal in which investors receive a 50 cent deposit for every $1,000 invested in a new low-volatility index fund for their first year. After the first year, they will be charged a fee of $2.90 per $1,000.

Falling fees will likely be among the topics BlackRock managing directors Howard Levkowitz, Jonathan McBride and Mark McKenna discuss as featured speakers at the upcoming SALT Conference in Las Vegas starting on May 7.

(Co)Mission Creep

The price war has created a major fee revenue headwind for several major asset managers. BlackRock shares are down 22.6 percent in the past year. Other asset managers that specialize in ETFs have also struggled. Invesco LTD (NYSE: IVZ) shares are down 39.1 percent in the past year, while Legg Mason Inc (NYSE: LM) is down 30.9 percent.

Investment Company Institute recently found that average fees charges by U.S. active equity mutual funds dropped from 0.94 percent in 2017 to 0.76 percent in 2018. The average fee charges by index-linked equity funds have dropped from 0.18 percent in 2008 to 0.08 in 2018.

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