Free and Clear

Research: What’s so great about the independent advisory business?Grist: The wirehouse has done a good job keeping this little gem of the industry quiet, but it’s gotten too big to keep under wraps. As you know, the RIA industry has really only been around for about 20 years but is managing about $2 trillion today and is growing very fast, at a rate of 12 percent a year. Advisors who custody with Schwab Institutional are growing even faster — more than 22 percent a year. The wirehouses are still much, much bigger, probably closer to $8 trillion or so, but are growing at a slower rate, more like 9 percent to 10 percent a year.

The RIAs are gradually taking share away from the wirehouses. It’s not like the wirehouse is in dramatic pain, just that the RIAs are gradually eating their lunch, if you like. Meanwhile, we at Schwab have recognized and honestly believe that unbiased advice is better for investors. We saw an opportunity 18 months ago to help accelerate advisors’ move from the wirehouse and help them make the transition into the independent model. I have a team of 10 people right now who do nothing but focus on what we can do to make life easier for wirehouse advisors making the transition.

Go on.A good independent advisor knows how to manage investments, but we think we can do a little to help them…set up their business. The team is active in filling in pieces of that puzzle, things like finding real estate; we have a partnership that can help RIAs find appropriate real estate. Or hiring, and above all, technology. We make all that simple for them, so they don’t have to spend time looking at vendors

And then they can start moving their book?We also help with the actual mechanics of transition, how you get this done, what kind of paperwork you need your clients to sign. We’ve built example forms and have advisor conversion teams that are 10 to 15 people doing nothing but this and doing a really good job of it. The error rate of forms that come back to us is less than 2 percent, so advisors’ clients aren’t going to be troubled. They’re going to get one package and get it right the first time. We highlight signature fields for them so it’s really easy for them to see where to sign. We do a lot of really mundane stuff like that, which would probably bore you senseless, but it’s important to get it absolutely right at that micro-detailed level. An advisor in the Pacific Northwest, Bill Smead of Smead Capital Management, recently went independent with $300 million in assets, and he literally spent the day driving with one of our advisor services conversion teams from Seattle to Portland, stopping in at clients’ houses and delivering the package personally.

Most advisors, because they’re successful, have successful relationships with clients. They tend to bring about 90 percent of their book with them, and about 5 percent of the book are people they choose to leave behind — sort of an opportunity to clean house.

I understand you’ll also lend them money to get their new operation started.We’re really pleased with how that’s going. I can’t share exact numbers, but we said we’d make $3 million in loans ranging from $100,000 to $500,000. We got interest at all levels of that range. People were very interested in $100,000 and very interested in $500,000, and that was very good to see. We were right; there’s definitely a need for advisors to have some help with start-up financing: They’re paying rent, making a real estate down payment and payroll for a couple of months before they get the income they need. We’re going to expand that program very dramatically later this year by bringing it to more states and making more actual dollars available.