Where Is the Seismic Shift Following the Schwab-TD Ameritrade Deal?
Last October, Charles Schwab completed the acquisition of TD Ameritrade.
The consolidation of two of the biggestfirms in the industry hashinted at a seismic shiftin the industry landscape.
It’s important to lookat the merger and otherchanges through twolenses: how it affects theindustry and how advisors will be affected asthey seek to control theirown destiny. The custodial industry has seen anincrease in consolidation,mergers and new firmsentering the space. These changes, whichwill take years before they make their fullimpact, will always have the biggest effecton the advisors that use the custodian.
Over the last 30 years advisors havegravitated toward one of the big four, soonto be three, major firms: Schwab, Fidelity,TD Ameritrade and Pershing AdvisorSolutions. The services of these big firmshave become largely commoditized, eachoffering the necessary core technology,holding a wide range of standard investment assets, facilitating the advisor’s billingand doing it for an increasingly lower cost.
After selecting a custodian, the goal ofan advisor is to focus on the most important brand: their own. Their businesspriorities are to serve their clients to thebest of their ability and build the firm’sbrand reputation within their community.
Unfortunately, the big-box custodians
have something else in common with each
other and the RIAs they are serving. They
have been building their own powerful
advice brands. Slowly but surely, discount
brokers have become powerful providers
of advice, playing in the same sandbox as
the advisors whose assets they custody.
Advertising dollars to pay for theiradvice model must come from somewhere, and advisors are helping to footthat bill. These big-box custodians saythat providing advice was unavoidable —it is what they must do to compete in themarketplace and enhance shareholdervalue. This concept has been discussedbefore, but recently, advisors have beenpushing back on custodians, particularlyin light of the disruption in the business.Right now, there is simply more choice inthe marketplace.
In the case of Schwab and TDAmeritrade, the full impact of that merger has yet to come to fruition. From ourexperience, these mergers always taketime. Nothing really changes at first andadvisors go about their business as usual.Their focus does not shift away fromtheir clients. However, if one of thesefirms already is providing spotty service,these problems may be exacerbated asthe merger progresses and can become apainful problem for the advisor.
Service issues are just one of a handful of
problems that can arise during a merger. As
and executive teams merge,
there are going to be plenty
of advisors at both firms
that start to think about
moving elsewhere. Whether
it is a lack of resources,
unfamiliarity with leader-
ship, change in employee
structure or the many small
changes that come with the
territory, these are unavoid-
able factors that may arise
On top of that, advisors need tostrongly consider how they are diversifying their clients’ assets. Advisorshave long preached not “putting all myeggs in one basket,” so those who havecustodied with both Schwab and TDAmeritrade will now need to activelyinvestigate an alternate custodian.
As an independent custodian, we haveseen plenty of movement as a result ofmarketplace disruption and we expectthis trend to continue throughout 2021and beyond. This as an excellent opportunity for smaller, more nimble andcreative custodians to capitalize on aninflux of new business opportunities. Thisis also a great time for advisors to breakfree from the gravitational pull of thesebig-box custodians.
There are options on the market outside of the new big three, and advisorsshould take the time to explore theiroptions in an effort to control their owndestiny. —Sean Gultig and Mark Aversof Equity Advisor Solutions.
NEW THIS MONTH THINKADVISOR.COM TECHCENTER LIVE EVENTS WEB EXTRAS DIRECTORIES BLOGS
FOR ALL THIS AND MORE WEB EXCLUSIVE CONTENT PLEASE VISIT THINKADVISOR.COM
INVESTMENT ADVISOR (ISSN 1069-1731) is published monthly ALM Media, LLC, 4157 Olympic Blvd. Ste 225, Erlanger, KY 41018-3510. Periodical postage paid at Covington, KY and additional mailing offices. Subscription Rate is $79 per year.
POSTMASTER: Send all subscription orders, changes of address and correspondence to InvestmentAdvisor, PO Box 3136, Northbrook IL 60065. Allow four weeks completion of changes