BlackRock (NYSE: BLK), the world’s largest asset manager and parent company of iShares, the world’s largest issuer of exchange traded funds, is entering the fast-growing robo advisor with the acquisition of FutureAdvisor. The deal was announced yesterday.
The transaction is subject to customary closing conditions and is expected to close in the fourth quarter of 2015. The financial impact of the transaction is not material to BlackRock earnings per share. Terms were not disclosed, according to a statement issued by the two companies.
BlackRock enters the burgeoning robo advisor that includes well-known names such as Charles Schwab (NYSE: SCH), WealthFront and Betterment.
“In recent years, however, automated investment firms have attempted to reverse the exclusivity of the practice, opening it up to less affluent investors, by computerizing the process with algorithm-based technology. Robo-advising firms aim to revolutionize the brokerage practice, and Betterment and Wealthfront’s recent actions exemplify the larger trends within the industry,” according to Iris.xyz.
San Francisco-based FutureAdvisor is a leader in digital wealth management. Its technology-enabled advice capabilities include: personalized advice that can look holistically across clients’ brokerage, IRA and 401(k) accounts; tax-efficient portfolio management; mobile and web applications; online account enrollment; and multi-custodian support, according to the statement.
As is the case with nearly all robo advisors, FutureAdvisor offers clients all-ETF portfolios. The firm custodies client assets with Fidelity and TD Ameritrade. BlackRock has an ETF relationship with Fidelity, including commission-free trading on Fidelity’s platform and Fidelity’s sector ETFs.
FutureAdvisor uses “dynamic cost analysis on many available ETFs, ensuring that your portfolio is designed efficiently for your unique portfolio size and the number and types of accounts you hold. This takes into account ETFs’ bid/ask spread (the difference in price between what investors are willing to buy and sell the fund for, which can be as high as 5%). Our strategy also considers trade-offs between ETF commission fees and expense ratios to help minimize the total cost. For small accounts, commission fees often have a larger impact, whereas for large accounts, expense ratio alone can represent the largest fee,” according to the firm’s website.
BlackRock has also recently been expanding its model ETF portfolio footprint in Europe.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.