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What’s Ahead For Charles Schwab After Merger, Pandemic
Charles Paikert
28 October 2020
Top Charles Schwab executives mixed tough love with confidence and optimism about the future of independent advisory firms as the industry’s largest custodian kicked off its 30th annual Impact conference yesterday. Advisors benefitted because the pandemic resulted in a “stronger reliance on people you trust,” Regan said, adding that the phenomenon has resulted in organic growth of net new clients for his firm. Trend lines The biggest threats to RIAs are “discount brokers, robo-advisors, Robinhood and the big-name firms that solicit clients from their 401,” according to Pricilla Gilbert, president of CenterPoint Financial, who spoke to reporters at Friday’s press conference.
Just a day after cutting 1,000 jobs in the first throes of digesting the newly-acquired TD Ameritrade custody business, Schwab chief executive Walt Bettinger told over 2,000 advisors watching the virtual conference that more job losses were “still to come.”
Bettinger saluted the departed TD employees in his keynote address, saying it was “not easy to part ways” with them, but noted the “great deal of change” the year has brought so far. “Frankly,” he warned, “there are some tough days ahead.”
Notable TD executives who won’t be joining Schwab include Tom Nally, Steve Boyle, Peter deSilva, Prashant Bhatia, Peter Dorsey, Jim Dario and Kate Healy.
In a call with reporters on Friday, Bernie Clark, Schwab’s head of advisor services, referred to the events shaping 2020, including the COVID pandemic, recession, high unemployment and a contentious presidential election as a “period of uncertainty.”
“Surprisingly resilient”
On Tuesday, however, Bettinger and Clark expressed confidence that the future was bright for advisors - and the bulked-up Schwab.
Citing Schwab’s just-released Independent Advisor Outlook Study, Clark said that the RIA business was “thriving” and producing growth rates of 8 per cent to 10 per cent. Bettinger noted that Schwab had “adapted quickly” to the pandemic, opening virtual offices with 95 per cent of its workforce working from home.
Wealth managers also proved to be “surprisingly resilient” in the wake of the coronavirus’ impact on the economy, Doug Regan, co-chair of Chicago-based Cresset Capital, said in an interview.
What TD advisors can expect
At the conference, Bettinger and Clark assured advisors who custodied with TD Ameritrade that there would be no minimum for assets under management or custody fees.
And while the Schwab Advisor Center will be the foundation of the custodial platform, popular TD programs including Veo and ThinkorSwim will be included.
“We will grow the capabilities from both Veo and Veo One on top of that platform,” Clark told advisors. “We recognize Veo has some fantastic capabilities and over time we’ll continue to incorporate those.”
The all-stock acquisition of TD Ameritrade, valued at $22 billion, closed earlier this month. “It’s early days,” Clark noted, adding that the complete integration of the two companies and its approximately 30,000 employees could take as long as three years.
Even so, Schwab’s dominance is already evident. The RIA custodian and digital and discount brokerage firm has $6 trillion in client assets, works with 10,000 advisory firms and controls 51 per cent of the RIA custodial market.
The merger, according to the firm’s founder and chairman, Charles Schwab, “isn’t about being the biggest. It’s about being the strongest.”
As for advisors, Bettinger emphasized the importance of having scale. “It’s a very, very big deal,” he explained. “It will determine who the winners are.”
And despite the new virtual environment, relationships will “continue to be key,” he said. “In person relationships won’t go away.”
Direct indexing “makes a lot of sense for a lot of investors,” and will be increasingly prominent, Bettinger said. “It’s one of the reasons we were so excited to acquire the technology and talent of Motif earlier this year.”
Fractional shares will also help bring more smaller investors on board, he said.
2020 is poised to set a new M&A record as RIAs “relentlessly pursue growth,” Clark said. Consolidation, fueled by private equity capital, he noted, continues to reshape the industry.
Looking ahead
The future for wealth managers will include lower fees, more holistic services and customization and continued tech disruption, Bettinger and Clark told the conference attendees. “Brand loyalty alone won’t assure success,” Bettinger warned.
Fee compression will be an increasing headwind for wealth managers going forward, Regan agreed. He also predicted that the cost base for advisory firms will become more “rationalized.” As advisors travel less, the T&E line will be viewed in a different light, Regan said.
Advisors, wealth managers - and Schwab - can also expect plenty of stiff competition from the likes of Goldman Sachs, Raymond James, LPL Financial and Morgan Stanley, Bettinger and Clark cautioned.
Holding steady
What won’t change?
People still need to be together, Bettinger said, noting that productivity at Schwab fell as virtual work was prolonged.
And for the time being, Schwab isn’t abandoning its physical presence in American cities.
Schwab isn’t planning on “major changes in our real estate strategy,” Bettinger said. “It’s too soon at this point in time to talk about drastic, wide-ranging sweeping changes, and abandon our historic approach to real estate. It’s best to focus on safety, health, serving our clients the best that we can and looking forward to brighter days in the future.”