Thursday, May 6, 2010

BlackRock Raises iShares Management Fees by 5%

The MER on many of the popular iShares exchange-traded funds (ETFs) will be going up due to a 5% increase in management fees. This change will affect 29 ETFs. A notable ETF not affected by this change is the S&P/TSX 60 Index Fund (XIU).

The Notice to unitholders goes to a lot of trouble to explain that this is just a change in the way that the GST is handled. BlackRock used to pay the GST out of the management fees collected, but now they won’t. The claim is that “There will be no change to the amount of management fees paid by any iShares Fund.”

Notwithstanding language games, the amount of management fee kept by BlackRock for the affected funds will be going up by 5%. The amount that investors will pay for the combination of management fees and GST will be going up by 5%. There is no getting around the fact that this is a 5% fee increase.

4 comments:

  1. This was the subject of my post today as well. My theory is that BlackRock is piggybacking on to the upcoming hike in HST to pass along the GST to unitholders as well. I'm so glad that not all my ETF eggs are in the iShares basket.

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  2. @CC: Your theory that BlackRock wants to avoid eating the increase from GST to HST is a good one. A side benefit for BlackRock is the added 5% in management fees.

    I'm almost completely moved over to ETFs now. Fortunately, they aren't all iShares either. However, I'd like to see some competitors to iShares put some pressure on them to prevent future MER increases.

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  3. It may have been William Bernstein (I can't recall) who sounded the warning bells about a publicly traded company, like Blackrock, owning an ETF issuer. Suddenly, the stakeholder that matters the most is the shareholders and their short-term desire to see rising quarterly earnings, consumer/investor of the products be damned.

    Mutual fund companies have gone down the same road (private issuer being acquired by pubco) and it is now better to own the issuer than the product itself. History doesn't repeat itself but it sure does rhythm.

    Even with more competition, I just don't see fees going down given historical patterns. Sorry to be a downer.

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  4. @Thicken: Don't be sorry -- I'd rather seek truth than wallow in comfortable falsehoods. Rising MERs on ETFs is a real concern. Any time my interests are almost completely opposed to another person's or entity's interests (as is the case between me and BlackRock), I try to be wary.

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