Charles Schwab received lots of good news in early June, with the Justice Department andshareholders approving its $26 billionmerger with rival TD Ameritrade.
The two firms, which collectivelywork with more than 10,000 RIAs and $5trillion, should come together by year-end. The technology and related integration, though, requires 18 to 36 months.
The industry was “pretty muchexpecting this outcome, so it’s not a bigsurprise to anyone,” said Tim Welsh,head of the consultancy Nexus Strategy.
What impact could the huge dealhave on advisors and other industryplayers over the next year or two — andbeyond? As the merger moves ahead,executives and industry watchers gavetheir “big takeaways” on its significance.
Most midsize and large RIAs will likely move to Schwab from TD Ameritrade,with others likely to go elsewhere,according to Joel Bruckenstein, head ofTechnology Tools for Today, or T3.
Custodians have a hard time making aprofit through services provided to RIAswith around $100 million or less in clientassets, given low interest rates and zerocommissions, Bruckenstein and others say.
“But what you see in this industry is thata vacuum usually gets filled,” the industryveteran said in an interview. InteractiveBrokers, Shareholder Services Group andTradePMR, for instance, are “beefing up”their offerings, he pointed out.
“And LPL Financial should get intothe RIA space in a big way,” Bruckensteinexplained, adding that newcomerAltruist also is moving to capture part ofthe business.
Has Schwab won the war within the
RIA industry? “It’s an evolving market-
place, and it’s too soon to tell. Changing
attitudes at firms and technology inno-
vation will influence this,” he said.
“All custodians are saying theirpipelines are full, and they are happy,”Bruckenstein added. “I do think Schwabcan convert the vast majority of thebusiness [from TD Ameritrade].”
Since the Schwabitrade deal was announcedin November, antitrust concerns have beenraised by advisors and others. But there’sbeen more activity from small players, too.
“This is ultimately good for most
RIAs,” said Chip Roame, head of
Tiburon Strategic Advisors. “Sure, many
pundits will simply say that Schwab will
eliminate TD Ameritrade as a custodian
competitor, but I have a few problems
Schwab is “an innovative company,”
the consultant says, meaning that it like-
ly will roll out more products and servic-
es. Plus, there could be further shakeup
in the industry with Morgan Stanley
acquiring E-Trade and Goldman Sachs
buying Folio Financial, he points out.
In addition, “Vanguard has made noise
about reentering [the market] as a custo-
dian,” Roame said. “And independent
broker-dealers like LPL and Raymond
James have custodial offerings now.”
There also are turnkey asset managers like Envestnet and robo-advisorslike Betterment “pushing more into thisspace,” according to Roame. And, of course,there’s the behemoth Fidelity, “which certainly won’t sit still, is super well-capi-talized and may benefit more than anyother firm” from the Schwabitrade deal,he adds. All these dynamics, Roame concludes, “raise the competitive landscape.”
Others agree with Bruckenstein and
Roame’s outlook on the changing
dynamics of the custodial sector.
“There’s an element that tends to get
overlooked,” said Gavin Spitzner, head of
Wealth Consulting Partners. “It’s not only
Schwab, Fidelity and Pershing. There are
a number of fast-growing TAMPs that
offer a bundled custody solution as well.”
With the Schwab-TD Ameritrade con-
solidation, the industry should see more
innovation, Spitzner adds, “and a prefer-
ence by some smaller RIAs to go to other
niche players such as upstarts like Altruist.”
One advisor, Pamela Sandy, CEO ofthe Cleveland-based advisory groupConfiance, summed up her concerns onTwitter when the Justice Department’sapproval of the deal made headlines:“That’s too bad. I’m happy using TD asmy custodian. TD is a great firm, and weneed competition — not mergers.”
RIA LESSONS & LEADERS
By Janet Levaux
Has Schwab Won the RIA War?
Consolidation is everywhere, but so are more options for RIAs, experts say.
Oct. 1, 2019: Schwab says it willeliminate commissions for tradesof stocks, ETFs and options; later inthe day, TD Ameritrade says it willdo so, too.
Oct. 2: E-Trade says it also will dropcommissions.
Nov. 25: Schwab says it plans to buyTD Ameritrade in a $26 billion merger.
Jan. 29, 2020: SEC filing refers toa second Department of Justiceantitrust probe.
June 4: Schwab says DOJ approvedthe merger, which shareholders ofboth firms do, as well.