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How Schwab-TD Ameritrade Merger Could Impact Innovation and More

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Thousands of independent RIAs flocked to the recently held TD Ameritrade Institutional LINC conference in Orlando, Florida — all seeking answers to questions for their clients and their businesses.

These game-changing questions stem from the blockbuster M&A announcement of late November that Charles Schwab will be acquiring TD Ameritrade in a massive $26 billion deal. The resulting organization will be branded as Schwab, and the Ameritrade name could end up in the dust-bin of history.

For years, TD Ameritrade has been a top advocate for independent RIAs. It has refused to enter into the competitive wealth management space that, in contrast, some other custodians have long coveted.

These custodians have viewed the field as a space where they should leverage their own powerful retail brands, $100 million advertising campaigns, employee advisors and extensive branch office networks to compete directly for mass-affluent clients — the bread and butter of the typical RIA.

As a result of fierce dedication to independent RIAs, TDA has developed a loyal following of 7,000 indie advisors who’ve built their businesses on the products, services and technology the firm has worked to innovate for the past 20-plus years.

Advisors often point out that the internal service culture at TDA makes a big difference to their clients and their ability to attract and retain business. “The best thing about TD Ameritrade is the people,” many advisors said throughout the three-day industry event.

Similarly, TDA also has been known for being a technology leader not only for RIAs, but also for the fast-growing advisor technology community.

The success of the Veo Open Access initiative to provide its API to third-party software vendors and enable those nimble tech leaders to innovate solutions on top of the TDA platform for advisors has led to a vast renaissance in advisor technology. In fact, it is considered by some to be the best place for new startups with innovative solutions to enter the business.

According to technology guru and T3 conference organizer Joel Bruckenstein, who hosted a seminal technology panel at the conference, if the Veo platform gets subsumed by Schwab’s systems in the acquisition, that may close the door to some tech startups hoping to get a foothold into the RIA space. “Other custodians have not been as open to new entrants and as a result, innovation for advisors will be stifled,” he said.

Thus, these key aspects of TDA’s innovation and culture were top of mind at the LINC conference, particularly for smaller firms that are not multi-custodian and thus rely solely on TDA for their back-office needs.

These thousands of smaller firms do not have as many options as larger, multi-custodian RIAs when it comes to accessing and developing custodial relationships; therefore, they could be at the mercy of the combined entity’s new policies, service models and operational platforms.

Some of the biggest questions these firms had were gamely addressed by TDA custodian leader Tom Nally. In a break from traditional custodian conference keynote speeches, Nally addressed advisor questions head-on with a no-nonsense, low fanfare approach.

Due to the regulatory and antitrust issues involved, the two firms must continue to operate separately until the financial transaction is finished “sometime in the second half of 2020,” he said.

As a result, there should be a lengthy (not to mention awkward and/or anxiety-filled) period when TDA staffers and affiliated RIAs may not know their fate.

“We are not able to even speak with Schwab’s executives, so we really don’t know the answers to many of the big questions,” Nally said. “We have only just started joint discussions on an operational level with a small working team, and the business side is not included.”

No Repapering Needed

The main piece of good news Nally was able to relate is that there will be no need to “repaper” accounts, so advisors won’t have to go back to their clients for disruptive paperwork and signature gathering.

However, as for the larger question of which technology platform will emerge, this is the advisor technology industry’s biggest unknown and potentially most disruptive outcome in a generation.

Opinions on what will happen next were top discussion items inside Veo Village, a compelling gathering of over 80 advisor-tech companies in the central conference area that stretched longer than a football field in the cavernous spaces of the Orlando Grand Hyatt. For technology vendors, the implications are significant, as all of them have benefited greatly from the TDA Veo Open Access integration initiative.

Many have been hopeful that Schwab would take a best-in-breed stance towards the two platforms, keeping the OpenAccess API driven approach of Veo and combining it in some form or fashion with Schwab’s brokerage systems.

However, others are more pessimistic in their expectations; they fear they likely could be left out of the combined entity and are rapidly opening discussions with other custodians to expand their options.

Particularly for the portfolio management and performance reporting systems, Schwab’s proprietary Portfolio Connect is a free option that they will now be competing against as TDA accounts get migrated to Schwab accounts.

Prior to the acquisition, Portfolio Connect only worked with Schwab accounts, so competitive portfolio management platforms integrated with Veo were a superior option and could justify premium pricing.

However, with the acquisition, all TDA accounts are set to become Schwab accounts, and these platforms are poised to go up against a free option that they did not have to compete with before.

On the service and operations side, Nally was limited in the level of detail he could provide; he said TDA would continue to invest and incent its service teams in the interim to continue to provide the outstanding and responsive service that RIAs working with TDA have relied upon to efficiently deliver service to their clients.

The fear for smaller RIAs has been that with the deal they could suffer from decreased service levels due to the size, scale and scope of the combined “small advisor segment” at Schwab, which may end up including over 10,000 firms.

At that size, combined with the low levels of revenues small advisors generate for custodians, service teams might be aggregated into general 1-800 phone numbers and self-service websites.

RIAs shudder at the prospect that they could face lengthy hold times on a daily basis as they attempt to rectify service issues and exception processing, whereas at TDA they have been used to a superior service culture the firm cultivated as its competitive differentiator.

Plus, these smaller advisors have been concerned about asset minimums and/or new “custodial platform fees” that can run into the thousands of dollars per quarter.

Today, RIAs affiliated with TDA do not pay custodial fees and have access to high service levels. According to statistics Nally and his team shared on stage, RIAs have a 91% satisfaction level with TDA.

In a sit-down interview, he described his passion and dedication to creating a culture at TDA that made it a “great place to work.”

Nally added, “We treat people right and spend a lot of time educating staff about the amazing work RIAs do for their clients. So much so, that it is inspirational for everybody, and I am extremely proud of the culture we have created here and the business we’ve built. We’ve had a big impact on the space with the relationships we’ve developed, and looking back on it all, I get a bit choked up.”

[Editor’s note: After LINC, Schwab CEO Walt Bettinger said the firm is “highly committed to the RIA space. And … I mean all RIAs of all sizes and shapes and forms.” The company added that it is committed to having no asset minimums or custody fees, supporting “best-in-class technology and open architecture” that includes third-party providers, employing top service professionals and offering practice-management consulting/insights for all firms on its platform, as well as a streamlined digital account-opening process.]

Timothy D. Welsh, CFP, is president, CEO and founder of Nexus Strategy, LLC, a leading consulting firm to the wealth management industry; reach him at [email protected] or on Twitter @NexusStrategy.


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