Could Altruist deal turn Vanguard into 'the next Schwab'?

Not a week had passed since Vanguard Group announced its plans to buy the custodian and fintech firm Altruist when Derek Notman received a voicemail from a Charles Schwab representative.

Notman, the founder and CEO of Intrepid Wealth Partners in Cheyenne, Wyoming, has been using Altruist's custodial services for the past five years to safeguard his clients' roughly $50 million in assets. The Schwab representative mentioned Vanguard's recently announced plans to buy Altruist and added, "Not sure if this is having any impact on your business. But if it is, and you want to see how maybe Schwab can help, I can also help grow your practice."

Notman didn't bother calling back.

"I don't blame Schwab or their reps at all for trying to do this," he said. "They are trying to grow their business, and they got boots on the ground to do it. So more power to them. It's just: I'm not their ideal candidate."

For one, Notman said he thinks the technology at Altruist is on the cutting edge in the industry. Altruist showed the threat it poses to rivals in February when its release of an AI-driven tax planner caused the stocks of Schwab, LPL Financial and Raymond James to tank in response to fears that large parts of their businesses could be automated away.

READ MORE: Schwab vacuums up assets, says there's plenty to share with RIAs 

The perception that Schwab competes with RIAs

But alongside the tech, Notman also likes it that Altruist and Vanguard are unlikely to compete with him for business. That marks a clear distinction from Schwab, he said, which is often accused of vying for the same clients and assets served by RIAs that use its custodial and other support services.

Both Schwab and Vanguard have in-house wealth management departments that could be perceived as rivals to independent advisors. But Schwab has been making plans that some perceive as encroaching on its RIA partners' businesses.

The firm recently took out an advertisement in the Wall Street Journal stating its intent to add thousands of advisors to the 3,000 financial consultants it already employs in-house. It also announced last month that it's raising to $5 million the asset minimum determining which clients can be referred to firms in its Schwab Advisor Network. That came after the threshold, which sets criteria for which clients Schwab is willing to share with the 150 RIAs in its network, was raised to $2 million from $500,000 at the start of the year.

Schwab has defended its recent actions by noting its estimate that there's roughly $37 trillion for RIAs to manage. The implication is that that's more than enough to go around, obviating the concerns about competition.

"But if I'm an advisor, I want to align with a company where that's never even on the radar," Notman said.

READ MORE: What do RIAs pay for Schwab as custodian? It all depends 

Vanguard, Altruist CEOs insist they're not out to compete

Schwab did not return a request for comment. Vanguard and Altruist executives have sought in recent interviews to portray the pending acquisition as nothing but a benefit to RIAs and their clients.

Peter Mallouk, president and CEO of the giant RIA Creative Planning, talked to Vanguard CEO Salim Ramji on Mallouk's podcast. Ramji noted that Vanguard has no branches through which it provides financial advice.

Rod Morata / Michael Priest Photography

"That's really why the RIA community for the past 20 plus years has been so important to us at Vanguard, because firms like yours and the community at large are able … to offer personalized advice at a very local level," Ramji told Mallouk.

In an interview this week with Financial Planning, Altruist CEO and founder Jason Wenk said he expects nothing in the pending acquisition to change how he runs his firm. He noted Vanguard plans to keep Altruist running as a separate business within its corporate structure.

"I'm not doing anything else other than running Altruist," Wenk said. "All Altruist is focused on is supporting independent financial advisors, fiduciary advisors. We're going to continue doing that, and we're not building competing products to advisors."

READ MORE: Schwab bets its lending services can help RIAs retain client assets 

Vanguard could become more like Schwab, but likely not anytime soon

Tim Welsh, the founder of the consulting firm Nexus Strategies, said he could see a day when Vanguard builds a referral network similar to Schwab's. He noted that Altruist is already providing custodial and other services to roughly 6,500 advisors who would no doubt be happy to receive clients through Vanguard.

If such a network is eventually built, there will inevitably be questions about which clients Vanguard is sending to its RIA partners and which it's keeping for its in-house advisors.

"And so, 10 years from now, they might look a bit like Schwab," Welsh said. "But I think in the next five years, it'll be pretty much a separation of high net worth clients for RIAs and then the mass affluent for Vanguard."

Welsh thinks Altruist's priorities will instead be its technological offerings and building out its custodial services to provide an alternative to industry dominators like Schwab, Fidelity Investments and Pershing. Vanguard will meanwhile concentrate on distributing its funds both through Altruist's current RIA partners and firms that join later on.

"Why would you want to blow up your distribution channel you just bought?" Welsh said. "I think they want to be very friendly and want to stay on the same side with RIAs." 

Notman for his part said he would welcome referrals from Vanguard and thinks the association of the Vanguard name will make his firm more appealing to clients who may have been leery to work with the less-familiar Altruist.

"And there might be a situation where Vanguard will actually be able to tap into their massive investor database and start sending those people to advisors on the Altruist platform," Notman said. "You know, for me, any investors looking for a human advisor could be pretty interesting."