With TD deal pending, Schwab woos small RIAs. Will it work?

Charles Schwab is pledging itself to serve small RIAs — an oath it is taking amid heightened scrutiny of its proposed acquisition of rival TD Ameritrade.

Since the $26-billion deal was announced late last year, some advisors have expressed concern about future service levels at the combined firm. The Department of Justice, meanwhile, is scrutinizing the deal over antitrust concerns, asking both firms and their rivals for more information.

It’s the RIA side of the business that is likely the focus of the Justice Department’s review, according to experts. A combined Schwab-TD would dominate the RIA custodial marketplace; Schwab and TD Ameritrade have about 7,500 and 7,000 RIAs on their platforms, according to the companies.The combined firm will serve about 24 million client accounts with more than $5 trillion in client assets, according to Schwab.

To allay concerns about small advisors being cast adrift, Schwab is going on a months-long media blitz to highlight what it says is its commitment to small advisory firms. Schwab declined to specify how much it would spend on the advertisements.

The firm says it recognizes that small RIAs “are the future of this industry.” Half the firms Schwab services have less than $100 million in AUM, according to the company.

Schwab says it has no intent to change its AUM minimum and custody fees policies for advisors. The custodial giant also remains committed to growing its network of third-party technology providers, it says — a particular point of concern among RIAs and technology vendors who use or partner with TD Ameritrade.

Regulatory actions and programs

Schwab wants TD but DOJ has questions — and not just for Schwab

The agency is seeking additional information from the firms as well as competitors and advisors.

By Jessica Mathews

February 6

The firm highlighted what it says are other benefits for RIAs on its platform, from practice management consulting to cybersecurity resources. Its most recent announcement included an executive’s recent remarks about how much Schwab loves small RIAs.

“To start with, we love small clients, because these clients, they are all in. And the ‘under $100 million client’ is a sweet spot for how we built our business, in effect, from the beginning,” Bernie Clark, head of Schwab Advisor Services, said last week during a business update presentation for shareholders.

Christopher Dilts/Bloomberg

During the update, executives shared details about how it would handle integrating Schwab and TD systems.

“Unless it's proven that we can't execute on it, we expect the Schwab systems to be the platforms of choice,” said Joe Martinetto, who was appointed to oversee the integration with TD Ameritrade.

But they did highlight a few examples of where TD would best Schwab in that contest. For example, Bernie Clark, head of Schwab’s custodial platform, said the firm will import iRebal and that they wouldn’t “take away anything that would limit small advisors from continuing to do business. It would make no sense for us to do that.”

The deal is expected to close in late 2020, according to the company, which recently said in an SEC filing that it did not anticipate the Justice Department’s review to delay matters.