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Shining light on the thinking at BlackRock

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8 October 2016
William Trout

It’s clear that there’s more than a little chutzpah behind BlackRock’s demand for tougher regulatory oversight of robo advisors. This post probes the thinking behind it.

Does BlackRock, with FutureAdvisor in hand, want to shut the door on new robo entrants? A desire to forestall such competition would suggest a level of fear that I do not think exists. (Among other things, the robo narrative has moved past the independent or 1.0 stage). BlackRock’s main concern seems to be that the sloppy hands of existing competitors might result in regulatory sanction on everyone, and so put the hegemony enjoyed by BlackRock and its asset manager competitors at risk.

Neither faster, nor better, nor cheaper

While BlackRock may have paid $150 million for FutureAdvisor, I don’t think the firm believes it owns a better mousetrap. FutureAdvisor may have an innovative glide path feature (which may explain why FutureAdvisor has an older clientele than its robo competitors), but tax loss harvesting, 401(k) advice, “try before you buy” functionality and other core capabilities have become table stakes in robo world. If anything, BlackRock may believe that its proprietary ETFs (characterized by low tracking error and a broad product base, e.g., Japanese fixed income) outshine the plain vanilla offerings of Schwab and Vanguard, although this argument is undercut somewhat by the firm’s recent decision to drop fees.

Asset managers in the catbird seat

Like the ETF business, robo advisory services have become increasingly commoditized, even as the DoL conflict of interest rule presents a massive tailwind for both. It’s a tricky time for asset managers seeking to shift their offer from manufactured product to advice based solutions. BlackRock appears to feel it is in the catbird seat, and is perfectly happy to secure its hand and that of its asset manager competitors, all of whom have done well by automating their investments platforms. I’m not saying there’s collusion here, just a noteworthy confluence of interests.

I’ll talk about the motivations behind the launch of another asset manager-backed robo in my next post.

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