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Do Charles Schwab RIAs think their custodian is competition?

Charles Schwab is pleased with initial interest in its new subscription-based model for its hybrid robo advisor, but some financial advisors aren’t as excited about the custodian’s new offering.

“Early results have been quite strong,” said firm CEO Walt Bettinger on a conference call following the company’s first-quarter earnings report. He noted a 30% increase in traffic to the digital advisory site and a 15% boost in daily account openings for Schwab Intelligent Portfolios.

Schwab rolled out its new pricing last month. Clients pay a one-time $300 fee for a financial plan, followed by a monthly $30 charge for unlimited access to a CFP. Reaction from financial advisors to the new model has varied, with some saying they’re concerned they may face competition from their custodian.

“I’d rather have them be open that they are competing with us,” Chris Cordaro, CFP and chief investment officer of a $3.6 billion RIA that custodies at Schwab, said in an interview with Financial Planning soon after Schwab launched the new pricing model at the end of March. He said he didn’t begrudge the company for doing so.

Another advisor who used to recommend Schwab’s robo platform to certain clients “[doesn’t] see any compelling reason” to do so any longer.

“We are in the financial planning and wealth management business,” Scott Cole, president of ColeFP and Wealth Management, said in an email. “If they are going to provide those services, then they are by definition a competitor.”

Other advisors including Patrick Dougherty of Dougherty Wealth Management, don’t think a hybrid robo-advice service goes head-to-head with most RIAs.

“It boils down to: Are you adding value that the Schwab platform doesn’t add?” he says.

For advisors like Bayard Closser, president of IPI Wealth Management, the new pricing model means nothing. “I haven’t paid any attention to it. It doesn’t impact us,” he says.

Bettinger has had to field concerns of whether Schwab’s direct-to-consumer offerings harm RIAs. In October, attendees of the custodian’s Impact conference asked the CEO why the custodian was marketing its robo to RIA clients, and on the recent conference call following its earnings report, the moderator asked how RIAs were responding to the custodian’s subscription model.

“Obviously when you serve seven-to-eight thousand RIAs, if a blogger wants to go out and find a RIA who wants to express concern with it, that’s not that hard to do given that volume,” Bettinger said on the conference call. “Then again, those same folks probably express concerns with virtually everything we do.”

Schwab isn’t the only custodian to face concerns that its platform might be a rival with its own advisors for clients. In February, TD Ameritrade CEO Tim Hockey, spoke to these fears directly when he told RIAs: “We will not compete with you.” The comment prompted whoops and cheers at the firm’s LINC conference.

Bettinger said on the call that the “vast majority” of RIAs consider this a unique offering from the services they provide for clients. “[Advisors are] not really seeing that as a competitive threat,” he said, noting that some RIAs he’d spoken have been “almost congratulatory of what [they’ve] done.” Earlier on the call, he said he didn’t think the new pricing model would displace asset or transaction pricing.

And Bettinger is still looking to the RIA channel for growth at Schwab as he contemplates global expansion. “What might be more appealing [than aggressive retail expansion], in the near term at least, would be the possible expansion of our RIA business internationally, to the extent other parts of the globe are headed more and more toward a fee or transparent model around investment advisory.”

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January 4

In the U.S., growth on the company’s RIA platform was crimped in the first quarter largley due to the government shutdown in December and January and the stock drop at the end of 2018, Bettinger said during the call. TD Ameritrade’s Hockey had noted similar trends during TD’s latest earnings report earlier this month.

“If you’re looking to break away, and of course, you’re making a bet on nine out of 10 of your clients following you to a new model, and those clients may have just experienced quite a bit of volatility or even losses in their account, that’s a difficult time to trust that they will follow,” Bettinger said.

As to whether Schwab is competing with its RIAs, Cordaro has a solution either way.

“I think advisors get all caught up in whether they are competing with their custodian. Just do the work,” Cordaro says.

First-quarter revenue rose to $2.7 billion, up 14% from the year-ago period, outpacing analyst estimates. Client assets in Schwab Advisor Services rose 9% over the same period to $1.7 trillion.

A company spokeswoman declined to comment on whether its subscription model results were stronger than the company had expected.

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