Charles Schwab & Co. announced Thursday that it is launching its biggest-ever national advertising campaign on behalf of advisors, featuring actual advisors in ads that will appear in publications and online intended to reach high-net-worth investors.
The ads, said CEO Walt Bettinger and Schwab Advisor Services head Bernie Clark in an exclusive interview with ThinkAdvisor, began Friday in publications like The Wall Street Journal, Forbes, Barron’s, The Economist and on CNN, along with video, social media and even paid search channels.
In the interview, Bettinger said the timing of the open-ended campaign “is right for the marketplace,” citing the Department of Labor’s recent fiduciary rule and “the increasing awareness of consumers” of the importance of having advisors who act in the best interests of their clients. Bettinger also commented on the state of Schwab’s business and the Fed’s interest rate policy.
When asked what the dollar amount of the campaign would be, Clark said “lots,” and while declining to give a specific sum, he said the spend on the advisor ad campaign was Schwab’s biggest ever — and the biggest ever in the custody industry.
The campaign was based on results of HNW consumer surveys, the two men said. “These are the words they gave back to us—fiduciary, trust, transparency,” Clark said. “They like this best-interest” approach that independent RIAs have, and that they “break the investment compromise” of traditional brokers who sell products that benefit the brokers and their firms and not necessarily their clients.
Clark said the ads and other steps were taken in response to consumer research that showed investors “don’t understand what an RIA is; they think it’s a firm, not a person.” To counteract that misunderstanding, “we did it with the faces of advisors” in those ads, and included words like “trust” and “fiduciary,” he said, intending to help differentiate independent advisors.
In the ad campaign, Schwab points to its “evolved” RIA Stands for You website, now called FindYourIndependentAdvisor.com, part of Schwab’s Independent Advisor Learning Center where investors can access more educational materials and find advisors in their geographic areas with a simple search-by-ZIP-code tool.
Speaking from Tucson, where Schwab hosted its annual Explore conference for 160 of its biggest RIA custody clients, Schwab also announced the ongoing success of a cybersecurity initiative for its advisors, including webcasts on the topic by Schwab’s Business Consulting Services team and a cybersecurity preparedness program. Clark said that “cyber is the biggest threat” to Schwab’s core business of protecting assets that advisors custody with Schwab Advisor Services. “As a firm,” he said, “we never want to embarrass our clients.”
As part of Schwab’s support to help the advisor work force “become more diverse in talent, ethnicity, gender and age,” Clark said Schwab supported the recently held debut of the Financial Planning Academy at Texas Tech University for high schoolers. In addition, Schwab also announced a matching-gift program to fund the Foundation for Financial Planning, pledging to match dollar for dollar all individual gifts to the Foundation of $5,000 and above, up to $575,000, and will use social media channels to encourage advisors to make such gifts.
On the advocacy front, Schwab reported that it joined with some of its advisors in participating in the Investment Adviser Association’s annual Lobbying Day in Washington, meeting with lawmakers on issues affecting advisors. In the interview, Clark positioned the Independent Advisor Learning Center and the new website as part of its advocacy efforts, while in a prepared statement he said part of advocacy was to help advisors “shape and navigate evolving trends and challenges … Attracting young talent to the industry is one more of the important ways in which we are actively working to champion independent advisor success over the long haul.”
What Does the Ad Campaign Mean for Advisors?
“I think it shows a commitment on Schwab’s part to partner with advisors in the RIA world,” said Yonhee Gordon in a separate interview Thursday, “specifically targeting consumers and educating them. The awareness part is especially important.”
Gordon, chief operating officer of JMG Financial in Oak Brook, Illinois, is one of the advisors featured in the Schwab advertising campaign. “The average consumer doesn’t know what it [fiduciary and RIA] means, you have to explain it,” she said. In many consumers’ minds, “the advisor profession has been tied to sales and insurance, but the profession has evolved.” It’s important “for us as advisors to talk about the value-added services we provide” to clients, and the Schwab ad campaign will be a step in disabusing people of the old notions about advisors.
Moreover, said Gordon, who appeared in Investment Advisor’s August 2015 cover story, “our business is relationship-driven,” offering as proof clients’ delight “when they learn we won’t charge them for a phone call or will be selling them a product; our clients should feel comfortable to call us about anything.”
When asked what advice Gordon would give to a young person considering a career as an advisor, Gordon said “I think it’s a wonderful profession, especially for women.” Some “women think it’s all about math, but it isn’t. Women are very service oriented and want to give back to the community. When you provide the kind of service [advisors provide], you’re making a difference.”
The State of Schwab and DOL’s Impact
When asked about the state of Charles Schwab & Co. itself, CEO Bettinger responded by citing its first-quarter results, in which “we grew revenue by 16%” over the prior year’s first quarter, “and net income by 36%,” both records for the company. At the same time, Schwab also announced a record $32 billion in core net new assets and $132.5 billion in net new assets over the prior twelve months. “We just released [on June 14] our monthly activity report” where net new assets in May alone were $16 billion, bringing total clients receiving “ongoing advisory services” to a record $1.31 trillion. “The company,” said Bettinger, “is incredibly healthy and strong.”
Speaking on the day when the Federal Reserve announced it would not be raising rates, Bettinger said that if the Fed goes ahead with its intention for two more rate increases “between now and the end of the year, it would be quite beneficial to us as a firm,” though while waiting for the Fed “in the meantime we continue to operate our business.” However, after “seven years of flat interest rates,” should the Fed raise, that would allow Schwab “at some point to be even more aggressive” in its corporate strategy.
Turning to the Department of Labor fiduciary rule, Bettinger said that despite the multiple lawsuits against it, “ultimately, we assume the rule goes forward” in its present form, which means “more people will be generating revenue from fees, with less from commissions, but that’s a long way off” still. Asked whether the DOL rule might harm RIAs by taking away one of their competitive advantages, Bettinger said “the DOL is striving for a model where there’s less differentiation.” However, there will be “significant change” at independent broker-dealers “and even wirehouses,” where “most of the assets are in commission-based products” and clients “think they’re getting advice for free.”
But responding to the competition question, Bettinger said “I want to emphasize that if the appearance of differentiation diminishes, it’s only in the portfolio” building process. “RIAs do so much more,” he said. “The counseling, the advising, the planning, the education — it’s all those other things that are unique,” he said, and “much harder to build into an algorithm.”
However, Bettinger concluded, the advent of digital advice platforms means that “the whole notion of asset allocation, rebalancing, even tax loss harvesting as a differentiated service — that’s going away.”