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Fidelity and BlackRock are cooking up a (de facto) de novo ETF company deep in the Rockies

The Boston giant appears to be renting the iShares first-mover advantage as a way to get big in a hurry

Author Lisa Shidler March 14, 2013 at 7:56 PM
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Nicholas Gerber: By working with BlackRock, they gain scale but under their own banner.




Stephen Winks

Stephen Winks

March 14, 2013 — 9:19 PM

I am probably in the miniority with this thought, but the industry’s top advisors are acknowledging fiduciary status to the fullest extent, are constructing portfolios at 8 bps utilizing real time buy/sell manager research with overlay management which offer expert tools in tax management (beyond most advisors capability) and are pocketing high margins at the expense of the cuts once taken by money managers and broker/dealers.

Wouldn’t a Fidelity/BlackRock deal work against the kinds of margins that top RIAs have achieved ? Will advisors continue to work as if they are helplessly captured by brokerage and product manufacturing interests, or will they autonomously build a high margin business that literally determines the value of their business ?

The one thing not taken into consideration by Fidelity/BalackRock is the self determination of the advisor to better control their margins and maximizing the value of their businesses. The largest advisors are headed in this direction and the smaller advisors will follow.


Jim McGuire

Jim McGuire

March 14, 2013 — 9:30 PM

Fox business not long ago discussed the recent announcement in regard to Schwab’s enhanced ETF program. http://video.foxbusiness.com/v/2163365607001/charles-schwabs-free-etf-trades-to-cost-you/

Does this mean that Fidelity’s free iShares ETF program is also available at National Financial Services (NFS)? Has Pershing and/or Pershing Advisor Solutions made mention of any similar type arrangement?

RIABiz — have you contacted NFS, Pershing for their perspective?

As a fiduciary there are so many more variables to consider when evaluating any product line beyond simply trade costs.

Elmer Rich III

Elmer Rich III

March 14, 2013 — 9:40 PM

This looks like a classic market share battle between giants. Interesting that BlackRock, a giant itself, would team up.

So Fido is active mngt and felt it needed the passive BR brand to not diminish it’s active, hi-margin, positioning.

Sounds like it is defensive – fear by Fido of assets leaving it’s active funds. The strategy seems sensible but sounds like a lot of moving parts and confusion in first 30 secs of pitch — the most crucial part: “We’re Fidelity, but BR, no, Fidelity.” !? Schwab can just say – “We got it all.”

It’s an interesting marketing positioning by Fido – “We’re good at managing stock portfolios, so that translates to ETFs.” Maybe

So this is a traditional product-centric business strategy. The existing products determine the business outreach. Always convoluted. This solves problems for the manufacturer but does it for RIAs and their clients?

Seems fair for advisors to ask how exactly this two-headed giant will be executed. How will it be explained to clients, etc. Hard to do.

Say Round #1 to Schwab. Having your competitor being forced to bring in a whole other firm to just get on the playing field is great win for Schwab.

Lisa Shidler

Lisa Shidler

March 14, 2013 — 10:04 PM

Hey Jim, Yes we’re reaching out to all of the “usual suspects” on this issue. FIdelity does not make this offering available through National Financial. But when I e-mailed company spokeswoman Erica Birke she did say that the relationship with BlackRock is “evolving” and they’re hoping to add new offerings to clients. Reading the tea leaves, I’d say it sounds like it could be in the works. We’re continuing to report on this issue.

Elmer Rich III

Elmer Rich III

March 14, 2013 — 10:27 PM

lol…Oh lord, protect us all from giants “evolving!?” Thanks for the great reporting.

Schwab must be very pleased.

Jim McGuire

Jim McGuire

March 14, 2013 — 10:38 PM

Thank you Lisa. It seems it’s a “race to the bottom” for these firms. They obviously don’t work for free so they have to be making the money someplace? I wonder, if the ETF providers are paying the firms a certain bps, they probably include that in their expense ratio but doesn’t that raise their expenses meaning pressure to increase their expense ratio? Can’t see how that can be a win for consumers. I believe Schwab, for example, charges mutual funds 40 bps to be on a supermarket but again, perhaps the fund companies could have lowered overall expenses if they didn’t have to pay such an outlandish fee? I wonder why their not satisfied with just receiving the standard 12(b)1’s?? Be interested how Pershing and PAS respond to this issue. Quite surprising NFS isn’t included considering they are a Fidelity company? NFS has stated for so many years’ they are on the side of their clients’ (B-D, Advisors) but since this is only available on their retail competing side, makes one wonder who they consider to be their primary master.

And I don’t feel Round #1 to Schwab. The lineup is small relative to the amount of ETF options out their and many of their ETF funds on their small list have such high bid/ask spreads, I’ll just say, I’m not impressed and refer back to the good folks at Fox Business Reports.

Elmer Rich III

Elmer Rich III

March 14, 2013 — 11:23 PM

“NFS has stated for so many years’ they are on the side of their clients’ (B-D, Advisors) but since this is only available on their retail competing side, makes one wonder who they consider to be their primary master.” “In asking the question you answer it. Fidelity is a very, very tough firm. The Ned Johnson remorseless about money — he wants it all. Period.

The main marketing sin is – confusion. The prayer of marketers is wishing “Confusion to my enemies.” Schwab already has that. You don’t have to out run all the “lions”, just the one hunting next to you.

Stephen Winks

Stephen Winks

March 15, 2013 — 3:27 PM

Just because the business model is changing, doesn’t mean that those engaged in the old model are bad or have unseemly intentions, it just means they have to adapt.

This is a normal evolution of the marketplace. Those that have the presence of mind to adapt will win big. Those that resist or ignore innovation in the investing public’s best interest self select not to compete.

ETFs vs Expensive Packaged Products is easy to resolve. The point being missed is in the final analysis the deciding factor is the advisor’s margins and the support of the best interest of the investing public which requires responsiveness to cost, transparency and technical assurances of fiduciary standing. Thus the drivers of the industry do not pertain to product but the necessary enabling resources to support expert professional standing that makes fiduciary standing safe, scalable, easy to execute and manage as a high margin business at the advisor level.

Neither Fidelity nor BlackRock can afford to be at odds with the advisor or the best interests of the investing public. The professional standing of the advisor is ultimately the only thing that will drive market share. The disconnect is no one sees beyond ETFs to enabling technology that render ETFs less than attractive, but in the consumer’s and advisors best interest.


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