BlackRock’s vision for the Future(Advisor)

Since my last post, there has been a lot of speculation as to why BlackRock would pay what is said to be more than $150 million for FutureAdvisor. One thing is clear: it’s not to market algorithm-created portfolios to retail investors. Rather, BlackRock seeks to build out its B2B business and secure distribution for its flagship iShares product. Providing institutional customers such as RIAs and brokerages with snazzy, built in onboarding and aggregation capabilities will help the asset manager more effectively sell its ETF wares. This goal explains why the firm is retrofitting its Aladdin Risk Management system to support the independent advisor market. Securing distribution makes sense given industry price pressures and the emergence of potentially disruptive strategies such as direct indexing. The strategy also speaks to BlackRock’s recognition of the dangers faced by pure play product manufacturers (this category includes insurers as well as asset managers) who become too far removed from the end consumer of their product. These dangers include the development of a tin ear for investor needs and the gradual erosion of pricing power.