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Industry Spotlight > RIAs

The Schwab Deal Is Done. Now Comes the Heavy Lifting.

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Chart of TD Ameritrade Merger The big industry arena in which Schwab competes includes a growing number of new rivals, as well as renewed interest from more traditional players. (Source: Morgan Stanley, 2019)

The final paperwork and related procedures tied to Charles Schwab’s $22 billion purchase of TD Ameritrade were completed Tuesday. But now — with an estimated 18 to 36 months of integration efforts ahead — the real heavy lifting begins. 

“Buckle Up. This one’s going to be bumpy. History of tough competition doesn’t often equate to harmonious marriages,” said industry consultant Doug Fritz Friday on LinkedIn, as more details on the wrap-up were being discussed.

Fritz sees potential tension in the Schwab-TD Ameritrade relationship spilling over into technology: “It will have a definite impact on the conversion timeline. From a system perspective, we’re also predicting serious potholes down the road. These experience issues will (unfortunately) be borne by their clients and advisors.”  

TD Ameritrade Institutional’s RIA clients were told last week that the popular National LINC Conference won’t be held in early 2021. Could it return at a future date? 

“We are evaluating our events calendar for 2021 and remain committed to delivering valuable content and professional development opportunities in a variety of channels. We will share more detail when we have it,” Schwab said.

It will, though, stage the yearly Schwab Impact event online Oct. 27-28 for advisors working with both parts of the freshly merged firm. 

RIA Marketplace

Bernie Clark, head of Advisor Services for Schwab, said during a media call Tuesday that the deal’s significance is “really huge.”

The transaction could be viewed as “the biggest thing we’ve seen happening in this space, in bringing great companies together with like-minded approaches to their clients and an opportunity for all investors,” Clark said.

The combined brokerage firm has over $6 trillion in client assets. In June, the combined assets handled by their registered investment advisor, or RIA, clients was $2.6 trillion — of which $1.9 trillion was at Schwab and $700 billion at TD Ameritrade.

About 30% of RIAs in the new entity work with both Schwab and TD Ameritrade Institutional. The remaining 70% custody with one of the two firms. 

Some advisors in these two RIA segments also may work with other custodial firms like Fidelity or BNY Mellon Pershing. 

Fidelity Institutional, which includes non-RIA clients, reports that it had about $3.2 trillion in assets under administration as of June 30 and works with 3,000-plus RIAs.

“Over the past year, we have seen a significant increase in inbound calls from firms that want to diversify and work with a custodian focused on delivering the greatest value to them,” said David Canter, head of the RIA and family office segments for Fidelity Institutional, in a statement.

Other rivals agree. “Disruption and consolidation are creating new opportunities for all players,” according to Ben Harrison, head of Advisor Solutions at Pershing.

“As the only major custodian that does not compete with advisors for retail assets, we are committed to the future of advisory business and becoming the most strategic, trusted partner to wealth and advisory firms,” Harrison said.

Pershing works with about 725 RIA firms with roughly $850 billion in advisory assets.

Financial Outlook

As for Schwab’s financial future, “Net interest income headwinds exist in the short term,” said Michael Wong, Morningstar Research’s director of equity research for financial service, in an interview.

“This is an issue that is not offset by the recovery in client assets and the stock market this year” or the record levels of DIY investor trading, which has doubled or more in volume. 

“And we are looking at low interest rates for years to come,” Wong said.

Still, Schwab’s cash-sweep programs will benefit from deposits held by TD Bank clients moving over to it in the coming decade, a plan worked out as part of the acquisition, he said. 

Longer term, Wong remains bullish on the deal. “The market has initially undervalued the synergies,” Wong said.

“Strategically, the combined firm should become solidified as one of the industry leaders in the online broker and entire financial services landscape,” he said. “It could at some point stack itself up against BlackRock and JPMorgan.”

TD Ameritrade’s shares (AMTD) ended their last day of trading Monday down 2% at $39.97.

On Tuesday, Schwab’s shares (SCHW) were down about 1% at $36.50 at 3 p.m. ET. They’ve declined over 23% in 2020 vs. a 4.5% gain in the S&P 500.

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