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Schwab ‘Loves’ Small RIA Firms: Bernie Clark

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While the Justice Department reviews the planned merger of Charles Schwab and TD Ameritrade, Schwab has reaffirmed its commitment to the RIA market, including smaller firms.

“We are highly committed to the RIA space,” Schwab CEO Walt Bettinger said at the company’s recent annual winter business update.

Bernie Clark, the head of Schwab Advisor Services, went even further in addressing the concerns of smaller RIAs, many of which custody with TD Ameritrade. “We love small clients, because these clients, they are all in. And the ‘under $100 million client’ is a sweet spot for how we built our business, in effect, from the beginning.”

Clark noted that more than half the RIA firms that Schwab serves have less than $100 million in assets under management and that those firms “are the future” of the RIA industry.

Schwab announced a five-part pledge to the RIA industry that will be appearing in ads and other communications:

  • No AUM minimums and no custody fees, and no intention to raise them
  • Best-in-class technology and open architecture, including a growing network of third-party providers. Firms will have the freedom to choose their own technology to fit their needs.
  • The best and brightest service professionals in the industry to help RIA firms and commitment to see the world through their eyes
  • In-depth practice management consulting and insights for every firm on the Schwab platform, including cybersecurity resources
  • A digital and streamlined account opening process for new clients with just a few clicks

The pledge addresses some of the concerns that smaller RIA firms have about the Schwab-TD Ameritrade merger, including fears that Schwab would institute a minimum AUM and use technology that doesn’t integrate with multiple third-party apps.

Questions remain, however, about what technology will be available when the two platforms eventually merge and about the culture of the new firm since TD Ameritrade is viewed as the Avis (“we try harder”) to Schwab’s Hertz, the bigger firm.

Will Schwab, for example, continue to use TD Ameritrade’s Veo Open Access and Veo One open architecture platforms, which provide integration with third-party providers?

Questions also remain about the final DOJ decision for antitrust issues. The Justice Department’s review has entered its second phase, according to identical 8-K filings by Schwab and TD Ameritrade made on Jan. 29 with the Securities and Exchange Commission. The filings notes that the each firm has received requests for “additional information and documentary material,” which extends the DOJ antitrust review by an additional 30 days following compliance with the request.

Both firms expect the merger will be completed in the second half of this year, as Schwab has previously stated.

Brian Hamburger, president and CEO of MarketCounsel, says the second request for information from Schwab and TD Ameritrade is nothing unusual. “The DOJ is trying to understand the nuances of the market.” The DOJ inquiry “seems to be following a predictable path so far,” added Hamburger. “It doesn’t mean the government will kill the deal.”

And if the deal is finally approved, as many expect, RIA firms will have a choice: to buy what Schwab is selling or to choose another custodian, according to Hamburger. “Advisors will vote with their feet.”

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