Betterment for Advisors offers insight on approaching 'Schwabitrade' account transition
As two of the industry's largest RIA custodians continue their journey to become one, the most important date for advisors is now just a month away.
Charles Schwab's integration of TD Ameritrade's brokerage and custody businesses has been in the works since the $22 billion acquisition closed in October 2020. But Labor Day weekend is the moment the thousands of advisors impacted by the union have been waiting for.
That is when advisors and their clients' accounts will convert to the new normal as part of the September 2023 "transition group." The shuffling of accounts has been a rolling process with Memorial Day weekend, Labor Day weekend and a weekend in early November being marked as key operational moments along the way.
The transition will end with a small group of client accounts moving over during the first half of 2024. The goal is to avoid investing and trading disruptions for clients and advisors.
By the latest company counts, TD Ameritrade and Schwab provide custodial services to a combined network of more than 14,000 RIAs.
In total, between 18 million and 20 million accounts will be moved over the course of this entire integration, according to Schwab officials. Post-integration, areas of focus for the merged entity include ongoing automation and efficiency improvements, modernization of books and records for the broker-dealer and workplace solutions, and rationalization of data centers and applications.
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To help advisors wrap their arms around the coming changes, Betterment for Advisors led a discussion focused on the topic Tuesday afternoon that analyzed what the shifting custodial landscape means for emerging and growing RIAs.
The event, organized by the RIA custody division of the nation's largest independent robo-advisor, featured Betterment President Mike Reust, Betterment for Advisors Director Thomas Moore and Strategic Sales Manager Devon Klumb.
The hour-long session covered what defines a modern RIA custodian, guidelines for evaluating alternate providers, strategies for simplifying account transitions and whether or not switching is the right move.
One of the first topics tackled wasthe evolving role of the RIA custodian, with Klumb saying they remain the centerpiece of an AUM based advisory practice, but the experience itself is fragmented.
"RIAs really need their custodian to own just more of the tech stack. Like deeper integrations within the platform that relate to practice managed functionalities, I think these are a must, and more traditionally, I think we're used to either costly add-ons or other third party solutions that you're kind of piecemealing together," he said.
Something Klumb believes has changed a great deal is the level of service that's being provided, specifically to smaller independent RIAs.
Klumb said firms are either seen as too small to get any real human support in a timely manner, or the custodian is just leaning so heavily on technology to create scale and efficiency from an economic perspective that they've done away with the human element of support.
"Neither of these are ideal solutions. And from my perspective … the modern custodian is sort of tasked with finding this sweet spot there for advisors," he said. "We've got all these legacy systems and structures that need to be unwound and rebuilt in order to be nimble enough to accommodate. … I think everyone is trying to figure out how to meet the needs of all advisors. And that, right now, is a little bit confusing."
Moore, however, said these changes can be seen as ultimately positive for advisors because as things evolve, more challengers set into the space to fill the gaps. That competition brings new innovation to the market and more choice to advisors.
"And, you know, hopefully, it brings about better solutions to the pain points that (advisors) all experience on a daily basis," he said.
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Weighing in on the challenges legacy custodians are facing in today's environment, Reust pointed to the influx of tech-enabled competition.
"A lot of folks out there, I like to believe we're in that group, are providing really compelling, next-generation, modern experiences that clients come to expect," he said. "If you log into some of these custodians' tools, and (it) feels like you're in a 2005 website suddenly. And if you launch the mobile app, good luck. It might be a little tricky to use."
That competition is made more fierce by the changing expectations of the client base, and the fact that new challengers are coming in and offering to do things at a lower price point.
"I think the custodians are facing something that the world has coined a bit of an innovator's dilemma at this point where it's really tricky to change your business," he said. "If you're still dependent on net interest margin revenue, you're still dependent on these various things, it's hard to change your business because you don't want to give those things up. In the meantime, you can't totally change your cost structure. So you're almost like stuck."
On the topic of the Schwab and TD Ameritrade merger specifically, Klumb said he has no desire to do any fearmongering when it comes to what the experience will be like for advisors.
He adds that advisors typically fall into one of two camps when the topic comes up.
"Either you're really nervous about this and you've already started making decisions towards some sort of change, or you're just going to sit and kind of wait to see what happens here," he said. "Schwab is the giant, and they've had a lot of time to get this transition right leading up to Labor Day. So I actually think this is less of a conversation about how the actual transition is going to go, and more about what life is going to look like afterward. They'll figure out the technology side of things. At a minimum, I think they'll figure out how to integrate the tooling that made TD such a great home for independent RIAs over the years."
But Klumb said one looming question for advisors that's worth asking is a simple one: Am I going to be a good client for a firm like Schwab given the way that their business operates?
"Again, not to say all this is like a point of fear. But rather, I think it's a framework for vigilance," he said. "The viability of Schwab as a business is not really a concern to me so much as just their general interest and being of service to the size of firm that TD had built a really good reputation around serving exceptionally well, for a really long time."
