(Photos: Bloomberg/Shutterstock; art by Chris Nicholls)

Schwab’s $26 billion purchase of TD Ameritrade raises several issues for RIAs, especially for smaller firms with assets under $150-$200 million.

Many of those advisors use TD Ameritrade as their custodian and at this point don’t know whether Schwab will choose to retain TD’s custodial platform or its own.

“I can’t imagine that Schwab will retain both platforms,” said Alois Pirker, research director at Aite Group. “You will lose capabilities that are specific to one or the other platform if that platform is not chosen.”

Chief among those are TD Ameritrade’s Veo Open Access and Veo One open architecture platforms, which provide integration of multiple third-party applications for advisors.

”Schwab doesn’t have integration at the level of Veo One,” said Pirker, noting that it provides integration with more than 100 third-party applications. “If Schwab choses to retain its own custodial platform, “smaller RIAs will have a harder time,” said Pirker. “Who will serve them after consolidation?”

E-Trade and TradePMR appear ready to provide that service.

This is nothing less than a huge opportunity for us,” said Matthew Wilson, E-Trade’s head of advisor services, in a statement. “The largest product push in RIA history is about to ensue. Our business model is unconflicted — no product manufacturing, and no competition with existing RIAs, which is increasingly important as the competitive ecosystem narrows.”

TradePMR, approximately 400 RIA firms, which equates to about 700 individual advisors, is also reaching out to advisors following the Schwab/TD Ameritrade announcement, noting that the firm doesn’t compete with advisors for retail clients or sell their own proprietary products.

“We only serve quality, growth-minded RIAs who are looking for a reliable, service-oriented custodian,” said Robb Baldwin, founder and CEO in a statement.

The competition — and conflict — of Schwab’s business model has big implications for advisors beyond their custodial choices, said Mark Tibergien, CEO of Advisor Solutions at BNY Mellon Pershing, the third largest custodian for RIAs in terms of assets after Schwab and Fidelity and fourth largest in terms of advisory firm clients.

Advisors may want to “think about different custodian than the one they are competing against … [which is] the biggest retail service in the country … a true national behemoth.”

In addition to choosing another custodian, they will need to be “fairly adroit to reposition themselves,” offering a unique value such as serving a niche market or offering a technical strategy rather than competing on price, said Tibergien. “Advisors can’t out-cheap Schwab, so they have to out-value them.”

In the meantime, some advisors are concerned about the merger.

Robin Giles, a financial advisor at Apex Wealth Management based in the Houston area who custodies assets at TD Ameritrade, told ThinkAdvisor that she’s “very worried that smaller RIAs are going to get the short end of the stick and be forced out after the merger goes through. Schwab has not been known as willing to work with small advisors in the past. I also feel this could lessen the drive for custodians to compete in areas such as technology and service offerings going forward.”

Dennis Nolte, vice president of Seacoast Investment Services in Winter Park, Florida, cited  “fears that Schwab may increase the minimum AUM for advisors using its custodian platform” or raise fees, with costs rising for independent advisors as they decline for end user clients. He clears through LPL.

Pirker expects the consolidation of the two firms could take as long as two years.

Blogger and XY Planning Network co-founder Michael Kitces suspects that “small TD advisors won’t get the boot for at least a few years” but “will get bottom-tier Schwab service teams and little other support” if they stay.

The future for Schwab “looks like more managed accounts — Schwab Private Client and Schwab Intelligent Advisor — converting TD Ameritrade retail customers into Schwab’s managed [accounts] which is a big opportunity,” said Kitces.

Before that happens, however, TD Ameritrade shareholders must approve the deal and the federal government has to review it for antitrust issues. In a call with analysts on Monday morning, Schwab CEO Walter Bettinger was confident the deal would pass antitrust review and be completed by late 2020.

— Related on ThinkAdvisor: Schwab Officially Strikes Deal to Buy TD Ameritrade