The government's increased scrutiny of Wall Street's fiduciary obligations will prompt a wave of mergers and acquisitions in the investment management industry, according to Laurence D. Fink, chairman and CEO of BlackRock Inc.
Addressing the Money Management Institute's Fall Solutions Conference in New York, Mr. Fink said that greater fiduciary responsibility on the part of money managers will mean the end of their reliance on the sell side for research. Instead, money managers are going to have to build scale and expand globally to gather intelligence themselves.
“I don't view calling up your broker and asking, ‘What's going on in China?' as a good thing,” Mr. Fink said. “To me, that is not living up to your fiduciary duties.”
As a result, he said, there will be a slew of mergers and acquisitions among midsize buy-side firms that can't afford to build out research capabilities themselves.
Regulators' increased focus on the fiduciary role of financial advisers will have other implications for investment management firms, Mr. Fink said in his speech.
If a fiduciary standard is imposed on brokers in place of the current suitability standard, the use of mutual funds may decline in favor of lower-cost investments, Mr. Fink said.
“It raises a question: As fiduciaries, can you offer a high-fee product when there are lower-fee products out there?” he said. “That will probably drive business from mutual funds to exchange-traded funds.”
Mr. Fink said he thinks regulators will probably find a middle ground for advisers.
In an interview following his speech, Mr. Fink said that BlackRock isn't looking to make any additional acquisitions. In June, the firm agreed to acquire Barclays Global Investors for $13.5 billion. And in recent months, there has been speculation that BlackRock could acquire roughly $130 billion in money market assets from Bank of America Corp.'s Columbia Management Group LLC unit (which recently sold its long-only equity and bond groups to Ameriprise Financial Inc.).
“Right now, we are focused on integration, integration, integration,” Mr. Fink told InvestmentNews, a sister publication of Pensions & Investments.
Jessica Toonkel Marquez is a reporter at InvestmentNews