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Industry Spotlight > Wirehouse Firms

How Schwab Cracked the Wirehouse Crowd

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Schwab Advisor Services, which as the leading RIA custodian epitomizes the independent advisor, is making inroads capturing the assets of the least independent among the advisor community, going after the huddled masses of wirehouse advisors — at least the most entrepreneurial among them — who are yearning to breathe free.

That the advisory division of Charles Schwab & Co. Inc. is making a splash in this competitive playing field is indicated by new data, which Schwab Advisor Services senior managing director Tim Oden calls “hot off the press.”

In an interview with ThinkAdvisor at the firm’s annual Schwab Impact 2014 conference in Denver, Oden deadpanned the seemingly grim news that the number of new teams recruited year to year from 2013 to the most recent reporting period in 2014 fell 17%.

But then he ginned up the contrasting finding that net new advised assets are up 19%.

Mathematically, that can only mean that “average deal size has gone sky-high,” he says ebulliently. Indeed, he further interprets the anomalous-sounding numbers by noting that practices with $35 million in assets under management are down significantly, while the average size of advised assets has increased 31% to a new peak of $144 million.

And the clincher: year to date, the proportion of net new assets coming from wirehouses is more than double the previous year’s pace.

So how did Schwab break through to the hard-to-get wirehouse crowd?

Oden, who acknowledges that wirehouse advisors are his top recruitment target (because they control the most assets) says that key strategic investments the firm has made in recent years today give Schwab the ability to attract advisors who six or seven years ago would have passed for lack of certain “sophisticated solutions.”

For example, the existence of Schwab Bank enables advisors to collateralize portfolios through loan facilities such that wirehouse advisors whose clients enjoy loans or lines of credit can replace them once the client accounts are transferred.

But far beyond these credit resources are “consultative resources” that most animated Oden. The consultant will use Schwab’s RIA Benchmarking Study to find that advisor’s relevant cohort and thereby develop goals that are realistically achievable in his practice.

Whether the advisor is itching to accelerate his business growth or to take his service model up a notch, Schwab’s consultants are there to help —“even before he’s a client,” Oden says.

How’s that?

“Long before you bring a single dollar to us,” he continues, Schwab consultant will sit down with a wirehouse advisor who, say, wants to build a digital presence.

The consultant will provide tools and templates that are aimed at increasing client engagement.

If an advisor is seeking to expand his practice by 15%, the consultant will work with the advisor to determine a reasonable growth rate, which might be higher or lower than 15% based on proper benchmarking, and help with operational steps to achieve it.

Those are the sort of things one would normally need a high-end consultant for, Oden says.

And to the extent that such resources are available to wirehouse advisors, they often come with a “product bias” or are exclusively reserved for the most elite teams rather than any interested advisor.

The availability of these resources was timed for the “sunsetting” of compensation packages that locked in many a wirehouse advisor over the past several years.

“Advisors now have the opportunity to evaluate whether taking another deal makes sense,” says Oden, who adds that many of the potential recruits he has met are disillusioned by the limitations imposed by their large corporate employers.

“They’re looking for alternatives — not necessarily where they can get the most money, but best lifestyle, succession opportunities. They already have wealth,” he says.

The Schwab exec tells of one recruit who threw off the yoke of his former wirehouse 18 months ago whose success was built on his determined efforts to reach out to all the generations connected to his primary client.

The advisor found that wirehouse compliance restrictions made it increasingly difficult to engage his clients’ younger generations — who might, for example, prefer texting or video forms of communication.

“If you’re an independent, nobody will tell you you can’t have a blog or Twitter account,” Oden quips.

A year and half into independence, that advisor has seen billable revenue increase by over 20%.

“His [approach] resonated with small-business owners,” Oden says.

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