Do Schwab’s New HNW Services Threaten Advisors?

What You Need to Know

Experts debate if the offerings are handholding for wealthy DIY clients or competition for RIAs’ hands-on services.
Schwab says it's providing specialized service and benefits, not advisory services, to the clients who hold more than two-thirds of its retail assets.

On the heels of Charles Schwab’s announcement Monday that it’s now automatically enrolling retail clients with more than $1 million in assets at the firm into Schwab Private Client Services, and those with $10 million and up in Schwab Private Wealth Services, industry experts seem deeply divided on the impact this move will have on financial advisors doing business with Schwab.

When asked if advisors should view the move to give these high-net-worth and ultra-high-net-worth clients free access to a dedicated Schwab consultant as advisor-friendly or threatening, Pirker Partners CEO Alois Pirker responded: “It’s a great question. The way I look at it, it really is [as] … a natural progression of where Schwab is coming from and how their clients have been engaging with them. And, hence, it makes perfect sense for that [wealthy] demographic.”

Will Schwab be moving to match what the wirehouse firms or RIAs do for their wealthy clients? “No, they’re coming from a very particular angle at this [retail] account demographic, and clients that were online-brokerage focused in the past might like it better than the full-service model, where they feel disintermediated from their assets,” Pirker said.

But Mark Tibergien, of Mark Tibergien Insights, disagrees: “The downside is that [Schwab’s] emphasis on retail continues to present a competitive threat to the advisory firms that use them, because it potentially confuses the market.”

Tibergien, the former head of BNY Mellon’s Pershing Advisor Solutions, added: “For the most part, RIAs have been indifferent to the competing messages, but the more that Schwab’s brokerage business looks and feels like their advisory client’s unique proposition, the more it will compel those RIAs to look for alternative or additional custodians.”

What’s at Stake?

Schwab’s total client assets were $7.65 trillion as of May 31, up 5% from May 2022 and flat compared to April 2023. About $3.38 trillion of these assets were in the firm’s investment advisor business, Advisor Services, and some $4.27 trillion were in Schwab’s retail business, Investor Services, including $326 billion of assets held by DIY clients receiving ongoing advisory services.

But as the firm pointed out earlier this week, the HNW and UHNW client segments have grown to represent more than two-thirds of its total retail client assets. Clients with more than $1 million at Schwab have expanded more than 10% annually over the last five years, while clients with more than $10 million at the firm are growing at a rate of nearly 20%.

In terms of Schwab’s two key rivals, Vanguard offers wealth management services, including a dedicated financial advisor and a wealth management team, for clients with at least $5 million, and flagship services for those with $1 million to $5 million. Fidelity offers private wealth management for those with at least $10 million in total investable assets.

“The HNW-investor waters are where everyone is fishing now,” said Rob Farmer, a former Schwab executive who is now managing director and head of communications at The Rudin Group. “These clients are attractive for many obvious reasons but they also require additional care, and without it could swim elsewhere.”

Schwab’s recent packaging of the client experience for its HNW and UHNW clients is likely focused equally on improving the “stickiness of current assets [and] attracting new clients,” he said.

“Schwab does not compete for clients of their advisors, but it’s fair to say they are potentially competing for the same prospects — especially with this new [offering] that ventures into a similar value [proposition] that has long been a hallmark of independent advisors,” Farmer added.

Upscale Retail

Beyond the issue of Schwab possibly adding to the list of competitive threats for its RIA clients, “Overlooked is the fact that even largely self-directed investors expect a higher level of service, responsiveness, exception accommodation and dedicated relationship management when they have substantial assets at an investment services firm,” said Chip Roame, head of Tiburon Strategic Advisors.

‘The Next Step’ for Schwab

Others agree with this view. “I believe that Schwab is responding to the competition in the marketplace,” said Joel Bruckenstein, head of Technology Tools for Today. The services Schwab just began offering “are just a higher level of service … and access to additional Schwab products and services.”

The news is really about the “next step in Schwab’s continued development of more and more financial services,” explained compensation consultant Andy Tasnady, managing partner of Tasnady Associates. The firm “already provides access to specialized services when asked (bond desk, trust, international stock trading, financial planning, etc.),” he explained.

“Clients that go to Schwab are more self-directed in the first place,” Tasnady added. The “move probably competes more with the major wealth management firms that Schwab clients might still be using to access ideas or advice with a portion of their assets,” he told ThinkAdvisor.

Room for Everyone?

For its part, Schwab insists that there’s room for both Schwab and RIAs to serve HNW and UHNW clients. “We made advisor clients aware of these new HNW experiences and they understand that there is room for both Schwab and RIAs to grow and serve more U/HNW investors,” a Schwab spokesperson said Tuesday.

“The two new services are about providing dedicated and specialized service, pricing advantages, and other rewards — they are not advisory services,” she explained.

The spokesperson referred to Schwab Private Client Services and Schwab Private Wealth Services as “complimentary service experiences,” saying “there is no charge and no action required by clients.”

She added: “The purpose of these services is to ensure higher net worth retail clients have the right service model and they are receiving competitive benefits compared to what other firms provide.”