The Department of Justice is calling a large number of RIAs and professionals working with RIAs, and that’s raising broader questions about what will happen to the $26 billion Charles Schwab-TD Ameritrade merger.
The calls are part of the second request in the discovery procedure staged by the DOJ’s Antitrust Division, which is charged with reviewing mergers and acquisitions that could have anticompetitive results.
“A second request is typical for a deal of this size, and we are not surprised the government would ask for more information and time to review it,” according to a statement from Schwab, which remains upbeat on the deal’s approval.
Not so fast, some industry sources say. “There are many advisors and others who think this deal would be terrible for investors and for RIAs,” said Tim Welsh, head of Nexus Strategy, a consulting firm.
“It’s really no shoo-in,” Welsh explained. “The odds against it have gone up quite a bit.”
The merger would unite about 14,000 of the country’s 20,000 RIAs, he says, adding that some of these 14,000 RIAs use more than one custodian.
Schwab has an estimated 50% market share as an RIA custodian; TD Ameritrade’s is roughly 15% to 20%, and Fidelity has about 25%.
“We continue to believe the transaction will be beneficial to investors and to the registered investment advisors who serve them … ,” Schwab said. “The industry is, and will remain, dynamically competitive, and we believe combining our two companies will give us the opportunity to enhance our services to all of our clients, including individual investors and RIAs.”
The deal was discussed by officials and advisors extensively at TD Ameritrade Institutional’s recent National LINC event in Orlando, Florida. Before, during and after the RIA conference, the DOJ was contacting advisors to arrange calls about it.
And one week later, Schwab CEO Walt Bettinger pledged it would not impose asset minimums or custody fees on small RIAs and has “no intention to raise them.”
While there’s plenty of competition on the retail or DIY investor side of Schwab and TD’s businesses, it’s the RIA side — which is more like an oligopoly — that has caught the DOJ’s attention.
With so few players in the RIA space, the loss of one party “means prices are going to go up for the advisor and/or the end client and service is going to go down,” said Ryan Hughes of Bull Oak Capital.