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Schwab’s Advisor, Retail Chiefs Talk Wealth Management

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As part of Charles Schwab Corp.’s 2015 Outlook session on Thursday in New York, the heads of Schwab’s RIA custody and retail operations gave their outlook on wealth management, which also turned into a look at how Schwab views advisors.

“Wealth clients want choice,” said Terri Kallsen, executive vice president of Schwab Investor Services, and among retail’s 9.3 million brokerage accounts, “customers are getting younger.”

Kallsen had headed up the branch network as a senior VP before assuming the top role of Schwab’s retail organization just weeks ago, replacing co-heads John Clendening and Andy Gill.

Many of the comments of Bernie Clark, executive VP of Schwab Advisor Services, focused on the needs of what Schwab likes to call “Generation Now,” the members of Generation X, Y and the millennials. “The tactics of engaging Gen Now are changing,” he said, and said of end clients “that return on clients’ portfolios is only 25% of the relationship” with advisors, with the greater portion filled by how advisors help clients reach their goals.

How is Gen Now affecting the markets? “It’s already doing so,” he said, but research into this group, including Schwab’s own, shows that younger people have been negatively affected by the dot-com crash, the Sept. 11 attacks and the Great Recession.

“We have to win them back to a long-term view,” Clark said. “They’re very short-sighted now,” which is why advisors will need to “start with the relationship, not the portfolio.”

As for robo-advisors and whether they pose a threat or an opportunity, Kallsen said that “clients expect a multichannel approach” to their investing and advice needs. And speaking of needs, Schwab’s planned Intelligent Portfolios ETF-based digital advice platform (promised to be released in Q1 of 2015 for both the retail and advisor channels) will help meet client needs for an “electronic, paperless approach to investing,” Kallsen said.

But even in the retail channel, Kallsen say that digital advice “needs to be supplemented with full financial plans” along with estate and tax planning. Schwab retail has already written 100,000 financial plans for its clients in the year to date, she reported, a 27% increase over 2013.

Clark said that robo-advisors (a term he doesn’t favor) “make sense as part of Schwab’s legacy,” but also will be “good for smaller investors,” especially for those younger investors who will be the recipients of the coming intergenerational wealth transfer. However, Clark warned that the process, and the players, involved in the advisor-client relationship will change.

“It’s not just about investing,” he said, but also “information sharing, social media, groupthink.” There will, he said, “be more voices” in the advisor-client relationship, and advisors need to get comfortable with that shift.

Kallsen and Clark then addressed what some advisors who custody with Schwab still fear: that Schwab retail acts as a competitor to advisors. “Bernie and I work closely together,” Kallsen said, particularly in making sure Schwab Advisor Network — the retail branch-to-Schwab-RIA referral program — works smoothly.

She said that $5 billion in assets were referred to Schwab Advisor Services RIAs in 2014 from the branches, which focus on clients with $250,000 to $2 million in investable assets. Those referrals happen when clients “need more sophistication” in their portfolio planning and financial advice, Kallsen said. “We’ve always wanted to offer a continuum of services” to clients, Clark said, including retail, advisors and even Charles Schwab Bank, that “surrounds the client.”

Even as Schwab Advisor Services nears the $1.1 trillion in assets under custody — and amount matched by Schwab retail — Clark said, “we’re still fishing in a big pond.” In addition, he stressed that “it’s an old story that we’re competing” with advisors.

When asked by moderator Brent Beardsley of the Boston Consulting Group to list Schwab’s top challenges for the next five years, Clark warned first that “there’s a wave coming” of Gen Now — “millennials are a larger group than the boomers” — that advisors must learn to serve.

Some 70% of advisors say they want to build legacy firms, but most advisors still don’t have a written succession plan. Finally, he lamented the fact that “we’ve only moved the wheel slightly” in making the advisor force more diversified by gender, ethnicity and age.

But Clark was also optimistic about advisors, whom he said now have “an extended sales force,” having “grown more loyal clients” through some of the darker financial times of late. Schwab advisors, he said, have a 97% client retention rate. As for Schwab itself, Clark said that while the company still keeps a sharp eye out in keeping investor costs low, “we haven’t thought of ourselves as a discount broker for some time.”

— Check out Schwab Sees Bull Market Raging On in 2015, With Caveats on ThinkAdvisor.


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