images of Schwab and TD Ameritrade signs (Photos: Shutterstock)

Charles Schwab’s $26 billion purchase of rival TD Ameritrade is just four days away

While the full integration of TD Ameritrade is expected to take 18 to 36 months following the Oct. 6 close of the deal, there are steps advisors should take now to address possible client concerns — and their own.

“Hope for the best and be patient,” said Joel Bruckenstein, head of Technology Tools for Today. “No matter how good the transition team is, and they are good, there will be some disruptions.”

For advisors expecting a perfect process, “you will be disappointed,” Bruckenstein explained. It likely should go “relatively smoothly, but not perfectly.”

Speaking broadly, the tech events producer and blogger said: “Some glitches are almost inevitable. It is difficult to predict exactly where they will happen, but it is likely that they will.”

For advisory firms at the lower end of the assets under management range, there’s been industry chatter about possible service issues. 

“There is some justification for their concern, but since Schwab hired Tom Bradley, I have a higher degree of confidence that issues will be addressed,” Bruckenstein said.

(Bradley, the former president of TD Ameritrade’s Retail and Institutional businesses, joined Schwab’s Advisor Services business on Jan. 13 to oversee custodial services for RIAs with up to $100 million in assets.)

“The two firms have different cultures,” Bruckenstein said. “From a human resources perspective, it will take a while to manage that.”

For now and until the account conversion is done 18-36 months from the deal’s closing, Schwab and TD Ameritrade “will continue to operate as separate broker-dealers, and clients of the two firms can continue to do business with their respective companies … and can expect access to the same products and same level of great service,” Schwab said in a statement. 

Put Clients First 

As the process moves along, though, advisors’ investor clients “may feel something bigger is happening” than may technically be true, said Angie Herbers, chief executive of the consultancy Herbers & Co. “So, it’s important for all firms, especially during the pandemic, to communicate more often and be very transparent about any changes in client services.”

Schwab has said TD Ameritrade clients won’t have to do paperwork or make other changes to their accounts. 

Asked when the branding on paperwork could change, the brokerage firm said: “We remain in the planning stages of the integration and have no decisions to announce about future plans at this time. We are committed to being as transparent as possible and will communicate decisions when appropriate throughout the integration process.”

While there may not be any “repapering” of RIA clients, “there may be perception changes,” Herbers said. “We are talking about people’s money, and so clients should have Schwab on their statements in the future.”

This is what matters most, she explained. “It’s the perception of change that is the reality [for clients] and their custody will be at a different palace” when the integration process is completed.  

For advisors caught up in the merger, “Keep an eye on client service, and communicate about change,” Herbers said. “This is really important.”

When it comes to other changes, like branding, that are expected down the road, “Do what is best for your clients,” she added. This means staying focused on client relations  what is best for them and what they need  and how you should best approach client services.

“We suggest talking to clients and saying, ‘This is happening, though we cannot do anything about it,’” Herbers said. Since clients worry about technology changes and shifts in policies and procedures, advisors need to lend an empathetic ear and listen to their fears. 

“The core issue is what’s best for clients and staying focused on that when there may be a major transition,” the consultant said. 

Schwab likely will “over-communicate and soothe worries [and] very little will change in the short term,” said Doug Fritz, CEO and founder of F2 Strategy.

But for advisors who either left Schwab for TD Ameritrade or picked TD Ameritrade because it was “unique and different from Schwab, the seams will start showing over the next 12 months,” Fritz said. “I have no reason to believe that Schwab can (or wants to) keep the TD culture of service and attention for smaller firms.”

Go Shopping & Prepare to Fix Workflows

Advisors “should definitely explore their options and [see] what else is out there, because this may not be what they want,” said Tim Welsh, head of the consultancy Nexus Strategy.

TD Ameritrade advisors are “going from a world of their own service teams, their own 800 numbers … to a world that can be much, much larger,” explained Welsh, a former Schwab employee.

“In fact, it will be up to 10,000 RIAs in one place, with one support team. The pure numbers suggest that service will be impacted in a variety of ways,” he said. 

Another issue might be the “rewiring” or “fixing” of different workflows that advisors have built into their practices, Welsh points out. This includes workflows that have been automated and/or put into customer relationship management systems which may have to be changed.

“These are not trivial changes. The changes here are almost as dramatic as if you switched completely” to a new firm,” Welsh said.

Advisors “need to really prepare for a complete rewrite of all their workflows, because it’s going to be different,” according to the consultant. 

“Disruption is definitely there. Despite what companies say, it absolutely will change how RIAs operate,” he added.

Advisors also have to answer these questions, the consultant said: “What is the pricing? What do I need to tell my clients? What’s my profitability now?”

These issues “are very individualized” for RIAs, Welsh explained. “You would think it’s all homogenized in terms of custodial relationships, but they’re all different. Everyone’s negotiated something slightly different.”

There will also be kinks to work out after the integration, for sure, he said, and concerns about them might prompt some RIAs to depart, rather than find out what they are.  

The workflows that advisors have “cobbled together” and built are “all going to be broken,” Welsh said. “They have to start over” if they shift to the integrated platform.

“Certain procedures and policies at TD Ameritrade are going to be different from what they are at Schwab, so you have to fix them all,” he added.

Offering a different take on what lies ahead, Wealth Consulting Partners Gavin Spitzner said that Schwab “will make it as easy as possible to move accounts, so for firms and advisors who were satisfied with TD Ameritrade, I don’t foresee tremendous upheaval.”

Why is Spitzner so upbeat? “Schwab has done a very good job with other acquisitions and transitions, and they know how important it is to get this one right and not alienate firms and advisors that had strong ties to TD Ameritrade.”

Watch Out for Risks

As he advises other clients, consultant Craig Iskowitz cautions that advisors should “double check business continuity plans and make sure any potential risk has a mitigation process in place.” 

“Custody is an important aspect of every advisory firms’ data structure, so any potential disruption should not be taken lightly,” explained the CEO and founder of Ezra Group.  

“However, there are a number of factors that reduce the risk from the migration of TD Ameritrade clients to Schwab custody,” he said. Given that Schwab is the largest RIA custodian, “adding the TD Ameritrade business is not going to strain the scalability of their systems.”  

RIAs using third-party systems for portfolio management means “they don’t have to worry about their connection to custodians,” Iskowitz explained. Still, advisory firms should reach out to their platform vendors “to see how they would handle an outage and if they have plans to access custodial data files via a backup feed or manually.”

As for trading system crashes, RIAs using third party portfolio management software shouldn’t worry. “They have an overnight batch feed for custodian files,” the consultant said.

The greatest risk is “if the custodial start of day files weren’t available in the morning, that day’s trading would be impacted, since they won’t be able to reconcile [accounts],” he pointed out. “This could totally freeze all activity in the accounts until updated files could be sent and processed.”

A portfolio management system with its own shadow accounting could  show net changes made to accounts. “But firms might be hesitant to trade against this data without double checking with the custodian,” Iskowitz said.   

The firms that might have problems are RIAs that trade through Veo, which doesn’t support any other custodian, he notes. “I would guess Schwab would convert these clients last, so they could work out any issues around migrating custody.”

Several years ago, 36% of all RIAs were multi-custodial (according to a Schwab survey). “This number jumps to 85% for the largest firms. So even if there was an outage, it would only affect part of their businesses,” Iskowitz stated.

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