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Regulation and Compliance > State Regulation

Schwab’s Clark on Retail Franchise Plans, New-Model Outsourcing

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“I know advisors are anxious” about Charles Schwab Corp.’s announced plans to institute a franchise-like model to supplement its existing retail branch advice offerings, says Bernie Clark, head of Schwab Advisor Services.

Clark maintains, though, that “most of our advisors have grown their minimums to where those people”—the mass-affluent clients that Schwab believes would take advantage of the franchise model—wouldn’t be seeking a Schwab-affiliated RIA’s services anyway. 

“We understand the sensitivity,” Clark said in a Thursday interview with AdvisorOne, taking a break from a gathering of Schwab-affiliated advisors in Colorado, but characterized the Independent Branch Services program as “a pure retail play.” CEO Walt Bettinger had previously mentioned the program to securities analysts and it was formally announced on June 6.

Those advisors' concerns are partly centered, Clark said, on “the quality of the people we’ll be hiring for this,” but argued that “crossover will be small; some advisors are already in competition with our branches now and will remain so. Walt [Bettinger] is committed to this, and we think it will be successful. It’s a branch expansion plan—we have to grow branches.”

Clark was echoing comments made by Andrew Salesky, a Schwab senior VP who is in charge of the Independent Branch Services program. In an interview with AdvisorOne’s John Sullivan on June 7, Salesky (left) said that he had been “pleasantly surprised at the level of support we’ve received from our own branch managers, as well as our independent advisor partners on the Schwab Advisor Services platform.” 

Asked to comment, Clark said that “Andrew and I spend a full hour to 90 minutes each week to understand” how the program will work, and that “Walt [CEO Bettinger] and I talk frequently” on the subject as well. The independent branches will use “centralized strategies” in providing advice, and “will look like any other branch that we have, except smaller. They will be in the mass affluent space.”

Just as in the existing Schwab retail branches, certain clients in the independent branches may well refer clients to the Schwab Advisor Network, the custodian’s referral program. Clark said some advisors have already “inquired about becoming part of this,” and suggested that with the current “regulatory headwinds, there will be some interest” from existing Schwab RIAs.

As for what he thinks about the state of the advisor market and those advisors that Schwab serves, Clark said, “My own intuition is that this will be a different decade.” Schwab itself, he says, “has done a good job on helping clients be more demanding” in terms of service capabilities and product selection, to name just a few, but that “we’re going to have to provide services that are more segmented” to the advisors it serves, especially family offices.

“Regulation is standing on top” of all the issues that advisors face, and that “the market is going to reward those who are more dynamic in the regulatory environment,” in which “it’s not just Dodd Frank—that’s just the start. Will an SRO come into play? Who really knows what state regulation will mean,” Clark said. Advisors themselves will need to be “dynamic to deal with that, and we will need to be dynamic in dealing with [Schwab’s advisor] clients."

Clark is interested in the “ecosystem that follows advisors,” sees a new version of outsourcing as

vital to advisors’ success, and predicts that there will be more outsourcing opportunities for entrepreneurial firms, especially in technology but also in other areas. These are, and will be, “purpose-built companies,” such as HighTower Advisors or Black Diamond, that, responding to “all the capital in this business” exist “for one reason—to serve advisors.”

He points to Schwab Advisor Services’ initiatives in CRM software. “The fact that we have Microsoft and working with us” shows that those “big players want some room on the shelf—they’re interested in the space.” He said SAS’ business consulting group “will be spending more time with advisors”—focusing on areas like marketing, technology, operations—“ the kinds of things you have to think about on outsourcing.”

As for the overall state of advisors, Clark belies that “there will be consolidation for sure; the bigger firms will be aggressive,” with many of those bigger firms looking to have a nationwide presence. Many of Schwab’s advisor clients “may have great practices but may not be scalable,” particularly with the “bar rising” on everything from technology to regulation.

He said Schwab already does “a lot of introductions” between client firms who are looking to either buy, sell or merge their practices to achieve that greater scale. “We’re looking for ways to help that process more systemically,” though not via an online matchmaking service, but perhaps through Schwab serving as “an integration engine for smaller firms.”


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