With $4.7 trillion, BlackRock is by far the largest asset management firm in the world. So when it decides it wants to make waves in a market, it’s akin to a planet shifting its gravitational pull.
BlackRock has established distribution in the institutional world and among Wall Street’s retail brokerages. It’s now on a mission to deepen its presence in the independent advisory channel. “We are still way behind other firms” when it comes to RIAs, CEO Laurence Fink said during his firm’s most recent earnings call with analysts.
Hollie Fagan, head of BlackRock’s RIA business, is leading the effort. She came up through BlackRock’s iShares division, the platform of ETFs acquired from Barclays in 2009. Those ETFs are widely used by RIAs. But Fagan says up until 18 months ago, the mutual fund side of the house, as well as BlackRock’s portfolio management expertise, had little traction with independent advisors.
Consider that of the $122 billion in assets BlackRock has in the RIA channel, $100 billion are in iShares’ ETFs, says Fagan. That’s exactly the opposite of the RIA channel's overall mix. The strategy is to leverage those iShares’ relationships to bring in actively managed BlackRock funds that can enhance a largely index-based portfolio.
“Advisors have a risk budget and they have a fee budget in the way they construct portfolios,” Fagan says. “There is an hourglass taking shape, and in the middle are the style-box managers, those that track the index and just charge fees. The use of ETFs are exposing those managers, and RIAs are saying they aren’t going to pay active fees for beta returns.
“They are using ETFs at the core and supplementing that with high-conviction managers” like BlackRock’s Strategic Income Opportunity Fund or the Multi-Asset Income Fund, led by CIO Rick Reider, as well as a slate of alternative strategies in mutual fund wrappers.
One of the first things Fagan’s team did was merge the separate sales teams from the BlackRock side of the house with the iShares’ side. Now there is a unified team of 12 internal sales managers and 12 external sales managers dedicated to independent advisors, and they changed the conversations away from product pushes and toward portfolio construction and management. RIAs can now get not just a reason to buy an ETF, but complete portfolios backed by BlackRock’s investment experience.
For instance, RIAs working with BlackRock have access to Aladdin, the firm’s internal risk analytics platform built to give institutions and large managers better metrics around risk and outcomes. RIAs can have BlackRock run stress tests and risk scenarios on their portfolios with a thoroughness rarely available to independent advisors, covering everything from the timing and magnitude of interest rate changes to the impact of conflicts in the Middle East.
Or a firm may want to replace some funds in their portfolio with less-expensive alternatives, and want to get a full picture of how that would change the overall risk dynamics. “It’s a large part of the value proposition,” Fagan says.
“We are pleased with the growth we have in our RIA channel in 2015,” Fink told analysts. “We have to become a trusted partner. And I expect we are going to build more share.”
Next Chris Flint