Schwab and TD – will the emerging advisor benefit?

There has been unprecedented disruption within the brokerage industry: most recently with the move to zero-fee trading commissions on trading and now the Schwab’s planned acquisition of TD Ameritrade. While these changes were inevitable, the speed of change within the industry is leading the RIA (or soon-to-be) to reassess their business plans.

It remains to be seen what the final outcome is, however we expect that Fidelity, E-Trade and Pershing will receive a short-term benefit from the merger as it will lead to a number of our RIAs looking for another destination. There is also a consolidation opportunity as historically RIAs have multiple custodians to access better technology and leverage the best offerings from each. As we continue to see consolidation, the emerging or new advisor is looking for assistance in creating and navigating the roadmap for their business and technology stack. 

Since the beginning of 2019, it became evident that Schwab became more motivated to do grow through acquisitions with USAA and then TD while TD absorbed Scottrade in 2016 (completed 2017) and it’s growth tapered with the CEO announcing his departure for 2020. Schwab continues to be a force within the industry and we anticipate that the right acquisitions will be in focus. The preemptive move to go to zero-fee commissions, after initial adverse reaction, seems to have been a boon for their new account growth. 

So what does this mean for the advisor?

It is anticipated that the bar was just raised higher to work with Schwab. It will lead a segment of advisors to consolidate or look for another custodian, join an integrated services platform / RIA consolidator or approach a merger partner. Smaller firms are typically more susceptible at times of shocks or market corrections so they may find themselves in a stage where all options are on the table.

It creates uncertainty for the advisor who was planning a move to independence from a wirehouse or broker-dealer to one of these platforms after 6-12 months of planning. Also for those firms who were in plans to achieve productivity gains through tech upgrades, it may place a pause in executing their plan at a critical time to gain efficiency. Those RIAs that were leaning on their custodian for tech guidance or a custodian-centric solution will need to reevaluate. Regardless of the “business as usual” message, it will be difficult to anticipate immediate and downstream impact to daily operations, technology and the human touch experience. 

This adds a cloud of uncertainty over smaller RIAs who were anticipating large productivity boosts from a custodian switch.

Notwithstanding, every advisory firm should be reviewing their business and technology plan with acute attention to optimizing workflow.  A technology integration opportunity for a firm is more attractive now with the range of available solutions and their APIs. For example, every custodian supports a capital markets trading and mutual fund platform. There will be nuances that effectively create gaps; history has shown that it’s not always a plug and play. There will be continue to be a growing need for independent, unbiased research and analytical tools to evaluate the myriad of funds and ETFs.

A custodian change is a major event for the RIA owner which requires planning. So the timing of determining whether you will achieve the anticipated productivity gain from your planned tech investment or looking ahead to accelerate one is paramount for making the best decision for your firm.

John DiBenedetto

Sales | Business Development | Customer Success

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