Schwab Says Wealth Expansion Won’t ‘Bump Into’ RIAs’ Clients

Apparently, this town is big enough for the two of us.

After Charles Schwab announced plans to expand its retail-facing Schwab Wealth Advisory business to new markets, a move that could position it to compete with some of its 16,000 RIA custody clients, executives are trying to calm any fears those independent advisors might have. “There’s $37 trillion in the marketplace; more than enough for everyone to have success,” Jon Beatty, head of advisor services, said during a press briefing last week. “We rarely bump into each other.” 

While advisors tend to feel confident that clients won’t leave them for a major firm, there’s still a fair bit of, let’s say, tension. “Advisors have to use custodians, and when they provide wealth management services themselves, how do we know they’re not going to try to poach clients?” asked Bryan Byrer, founder of Millennial Financial Planning, who custodies with Schwab and is happy with the service overall. 

My, How You’ve Grown

Schwab plans to expand its reach from 20 affluent markets to 30 by the end of the year. The firm maintains that it wants to serve clients any way it can. While that means growing its own wealth business, it also means supporting RIAs beyond custody. “Custody is table stakes,” Jalina Kerr, Schwab managing director of advisor services, said at the press briefing. She added that the RIAs Schwab works with are asking for help with alternative investments, lending services and business consulting.

Landon Tan, founder of Query Capital, said Schwab might not be a direct competitor to the RIAs it serves, but it can sure feel like it. He pointed to Schwab’s “Carl” ads, which he argued portrays independent advisors as expensive and ineffective. “It would be embarrassing to hold Schwab out as your custodian and then have clients see that your ‘partner’ openly mocks you,” Tan told Advisor Upside. Still, advisors who deliver value have little to fear. “If your clients are getting great value working with independent advisors, they’re not going to switch to a giant retail firm.”

Schwab’s RIA custody business remains a major growth engine:

• Schwab custodies $5.5 trillion in assets for RIAs that partner with the firm, Beatty said.
• Those RIAs brought in $86 billion of net new assets from 88,000 households in the first quarter.

“Our pulse on the market is that advisors are growing and thriving in their businesses with us,” Beatty said.

Not Too Worried. Not all advisors see Schwab’s move as a threat. “I’ve had plenty of clients move their assets from a Schwab-employed advisor to me,” said Chris Diodato, founder of WELLth Financial Planning. He added that Schwab lacks personalized expertise and often feels more sales-oriented. “It’s the same complaint I hear when people are working with wirehouses or retail banks.”