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Industry Spotlight > Clearing and Custodial Firms

Where Is the Seismic Shift Following the Schwab-TD Ameritrade Deal?

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What You Need to Know

  • The full impact of Schwab's purchase of TD Ameritrade won't likely be felt for another 12 to 18 months.
  • Increasingly, major custodial firms have been competing with their own clients by offering advice.
  • Advisors have been told to diversify custodians, but will they?

Last October, Charles Schwab completed the acquisition of TD Ameritrade. The consolidation of two of the biggest firms in the industry has hinted at a seismic shift in the industry landscape. What’s next?

It’s important to look at the merger and other changes through two lenses: how it affects the industry and how advisors will be affected as they seek to control their own destiny. The custodial industry has seen an increase in consolidation, mergers and new firms entering the space. These changes, which will take years before they make their full impact, will always have the biggest effect on the advisors that use the custodian.

Over the last 30 years advisors have gravitated toward one of the big four, soon to be three, major firms: Schwab, Fidelity, TD Ameritrade and Pershing Advisor Solutions. The services of these big firms have become largely commoditized, each offering the necessary core technology, holding a wide range of standard investment assets, facilitating the advisor’s billing and doing it for an increasingly lower cost.

After selecting a custodian, the goal of an advisor is to focus on the most important brand: their own. Their business priorities are to serve their clients to the best of their ability and build the firm’s brand reputation within their community.

The Catch

Unfortunately, the big-box custodians have something else in common with each other and the RIAs they are serving. They have been building their own powerful advice brands. Slowly but surely, discount brokers have become powerful providers of advice, playing in the same sandbox as the advisors whose assets they custody.

Advertising dollars to pay for their advice model must come from somewhere, and advisors are helping to foot that bill. These big-box custodians say that providing advice was unavoidable — it is what they must do to compete in the marketplace and enhance shareholder value.

This concept has been discussed before, but recently, advisors have been pushing back on custodians, particularly in light of the disruption in the business. Right now, there is simply more choice in the marketplace.

Many smaller firms are different because they are not cutting the advisors’ clients off at the pass by advertising an advice model during the Super Bowl.

In the case of Schwab and TD Ameritrade, the full impact of that merger has yet to come to fruition. We are probably another 12 to 18 months away from seeing the true fallout.

From our experience, these mergers always take time. During the first phase, nothing really changes, and advisors go about their business as they normally would. Their focus does not shift away from their clients, and ultimately advisors want to avoid making any drastic moves unless necessary.

However, if one of these firms is already providing spotty service, these problems may be exacerbated as the merger progresses and can become a painful problem for the advisor.

Merger Headaches?

Service issues are just one of a handful of problems that can arise during a merger. As departments consolidate and executive teams merge, there are going to be plenty of advisors at both firms that start to think about moving elsewhere. Whether it is a lack of resources, technology changes, unfamiliarity with leadership, change in employee structure or the many small changes that come with the territory, these are unavoidable factors that may arise over time.

On top of that, advisors need to strongly consider how they are diversifying their clients’ assets. Advisors have long preached not “putting all my eggs in one basket,” so those who have custodied with both Schwab and TD Ameritrade will now need to actively investigate an alternate custodian.

As an independent custodian, we have seen plenty of movement as a result of marketplace disruption and we expect this trend to continue throughout 2021 and beyond.

We view this as an excellent opportunity for smaller, more nimble and creative custodians to capitalize on an influx of new business opportunities. This is also a great time for advisors to break free from the gravitational pull of these big-box custodians.

There are options on the market outside of the new big three, and advisors should take the time to explore their options in an effort to control their own destiny.


Sean Gultig is CEO and Mark Avers is vice president of business development at Equity Advisor Solutions, an affiliate of Equity Trust Company.