With about 20% of TD Ameritrade's client assets and accounts left to transfer into Charles Schwab, one expert has her sights set on the end of this year and Tax Day in 2024. Those deadlines will test whether the financial advisors and clients of 7,000 registered investment advisory firms that previously used Ameritrade as their custodian have the correct cost basis of their assets for tax loss-harvesting purposes and the right Form 1099s for their customers' filings, according to Grier Rubeling, the founder of consulting firm Advisor Transition Services.
Rubeling, who helps advisory practices through custodial, brokerage or other changes, compiled the definitive guide to switching from Ameritrade to Schwab on her firm's website, a series of LinkedIn posts and the Michael Kitces "Nerd's Eye View" blog. While "the conversion was mostly successful," there could be "a little bit of a flurry of logistical activity around tax time and around year-end" about cost basis and adding two 1099s together, she said in an interview.
"If you are forced to change your habits and behavior and the way that you do things, by no choice of your own," she added, "some people deal with that change better than others."
Schwab answered most of Financial Planning's questions about those two issues and several others involved with the Labor Day transfer of $1.3 trillion in assets across more than 7 million client accounts — what CEO Walt Bettinger described last month as "the single largest conversion event in our industry's history." Cost basis moved over to the Schwab Advisor Center for tax strategy purposes, and the firm will send former Ameritrade customers and advisors their pre- and post-conversion 1099s through the advisor platform and the client website, Schwab Alliance. Bettinger and other executives speaking at last week's Schwab IMPACT admitted that the conversion was "imperfect" and asked for the opportunity to solve any problems.
"Give us first chance to talk to you before you spin out into another place and think about things differently," said Head of Advisor Services Bernie Clark, according to industry publication Financial Advisor IQ. "It is so, so important that we have that trust."
The conciliatory tone marks yet another stage in the transition that began more than three years ago with the October 2020 close of Schwab's acquisition of Ameritrade at a price tag of $22 billion. Schwab has slated the final moves out of the last of the 18 to 20 million ex-Ameritrade accounts for this month and early next year. Attrition out of the industry-leading combined group of 14,000 RIAs, a new round of cost-saving job cuts and frustration over technology difficulties and mutual-fund transaction fees could threaten Schwab's dominance as the largest custodian.
"It was just a technology shock to a lot of the TD Ameritrade advisors who weren't on the Schwab platform," Rubeling said. "They're realizing that there are just some nuances to the Schwab platform that are not ideal. Schwab is the biggest; they're the oldest and the most well-known, and they integrate really well with outside firms and technology. … With such a large company, change is difficult sometimes and welcome in some cases. It still causes the issue that those who were on the TD Ameritrade platform who had never used Schwab before are having a longer adjustment period to the new systems."
If Rubeling's website represents the practical independent resource, influential wealth management journalist Bob Veres gathered the most comprehensive accounting in his publication, Inside Information, of the troubles experienced by RIAs during the integration. Over 20 pages in its October issue, RIAs anonymously shared the pains caused in their operations and their anger about the juxtaposition of the unexpected manual labor with what they viewed as a public victory lap by Schwab executives and positive coverage in trade news publications.
"Several hundred advisory firms" reported issues to Veres after he reached out to subscribers for input, he wrote. Problems he logged included: accounts and settings that didn't transfer properly, no migration of pre-set withholdings, the inability of previously authorized users to trade or view holdings on the new portal and inadequately trained service representatives.
"I have never, in all my years of working with PR people and companies putting on their happy face, encountered a bigger disconnect between what the company was saying and what the customers were saying and experiencing," Veres told FP in an email.
Some "expected deal-related attrition has temporarily weighed on net new asset flows" in the third quarter, although overall retention of the former Ameritrade RIAs is "tracking markedly better than our initial expectations," Bettinger said in prepared statements released with Schwab's earnings last month. Net new assets for the division housing the firm's custodian business, Schwab Advisor Services, tumbled by more than two-thirds year over year to $19.6 billion in the third quarter.
Bettinger also pledged that the firm would generate at least $1 billion in annual cost savings through "capturing the remaining deal expense synergies, streamlining our operational design, aligning our geographic footprint to match our hybrid workforce and harnessing the benefits of increased automation." This week, Schwab confirmed it will lay off 5% to 6% of its workforce, or about 2,100 employees, as part of the Ameritrade integration, Bloomberg News reported. The company has worked to maintain the same RIA and corporate service-team relationships through the Ameritrade transition "based on direct input from advisors," spokesperson Kerstin Österberg said in an email.
In emailed responses to FP with statements from Jalina Kerr, Schwab's managing director of advisor experience and platform solutions, Österberg cited differences in the regulatory framework between it and Ameritrade that required new security protocols after the conversion, since any "third-party access to any component of a client's credentials is a security risk." The firm is "continuing to evaluate our policies and soliciting feedback from advisors to determine how we can improve the advisor experience while keeping asset safety and prudent financial stewardship front and center," Kerr said.
Schwab is trying to resolve any problems "as quickly as possible" by "connecting directly" with RIAs about them, Österberg said. Software tools like iRebal portfolio rebalancing, the thinkpipes Advisor Platform and the Model Market Center of 526 model portfolios from 52 managers have merged on to Schwab's platform, and the firm was "pleased with the outcome of the transition weekend" in early September, according to Kerr.
"The integration of the Schwab and TD Ameritrade custodial platforms was unprecedented in scale and complexity, and we've been transparent about the fact that there would be some challenges along the way," Kerr said. "Since integration weekend, most advisors have continued to serve their clients with no major interruptions. Of note, we have seen high levels of adoption of our single workflow, multi-account, 100% digital account onboarding. However, there are advisors who are still acclimating to what is, for many of them, a different way of conducting business. Our focus right now is on helping those advisors resolve any issues and return their focus to serving their clients."
Case in point
The words likely provide little solace to advisors such as John "JR" Robinson of Honolulu-based Financial Planning Hawaii. Two months after the transition from Ameritrade to Schwab, Robinson has "succeeded in cleaning up some of the messes that Schwab has created" but "the dumpster fire is still burning," he said in an email.
Restoring access and viewing of all family members' holdings in their households' accounts on the new platform for every customer has been "a needlessly laborious process that is ongoing," getting the right withholding instructions back in place is "a time-suck," and Robinson's team keeps getting "blindsided on an almost daily basis by the discovery of banking instructions and automated distribution instructions that failed to map as well as by client profile information that was randomly changed by Schwab during the transfer process," he said in an email.
In addition, he faulted the firm for "bureaucratic and autocratic" procedures like an eight-question verification "gauntlet" for his 91-year-old father-in-law. In September, Robinson traveled to Massachusetts to visit 25 clients in person to help them sort out the difficulties with access to accounts and snafus involving assets transferring to the wrong RIA.
"Schwab's culture seems oddly akin to the big wirehouse mentality," Robinson said. "It reminds me of my days at Citigroup Smith Barney and Wells Fargo. I have changed firms three other times in my 34 years in this industry. Even though no new account or transfer paperwork was involved in Schwab's integration of TD, this has been the most stressful and most time-consuming change of my career."
He described new transaction charges for Vanguard funds as a potential "deal-killer" for continuing to work with Schwab in the long term. Robinson has posted a blog on his firm's website about the contrast between a "ticket charge" of $45 for transactions involving Vanguard and another fund company favored by RIAs for its low-cost products, Dimensional Fund Advisors, and Schwab marketing about low fees and cutting commissions. He vowed to take the company up on ads offering a "satisfaction guarantee" of reimbursement of eligible fees relating to clients' concerns.
Schwab didn't respond directly when asked about the ticket charges in a series of questions FP asked about the conversion. Representatives for Dimensional declined to comment on the pricing structure of the firm's products on a custodian's platform, while representatives for Vanguard referred questions back to Schwab.
1+1 doesn't equal Veo One
In general, the migration to Schwab has proven to be jarring for many advisors who previously used Ameritrade's Veo One platform, which "absolutely seems to have had a religious following" based on the easy user experience and "how open and broad the number of integration partners were on that platform," said Andrew Besheer, the director of consulting firm Datos Insight's wealth management practice. While Schwab has "really tried to bend over backwards" to retain much of the same capabilities, there will "probably will be some attrition of smaller firms over time," he said in an interview.
"I know that Schwab has made a huge effort to try to bring over all of the integration partners," Besheer said. "I honestly believe that the amount of noise subsequent to the Labor Day conversion has been very, very low. It does not seem as if there have been mass defections. There's always going to be turnover."
Schwab has conserved "access to the Veo One features that were most prized" while providing support to aid advisors and teams learning the new platform and "looking at everything with a fresh perspective and a view ahead" in investing in the Advisor Center platform, Österberg said. The Veo One tools have clearly come up in a lot of the advisor feedback to the firm.
"Since the transition weekend, we have been consistently collecting advisor input and making real-time adjustments to Schwab Advisor Center," Kerr said. "These updates already include navigational and interface changes to make it easier for advisors to find what they need on the platform and refining the policies and functionality of our Move Money tool."
Some advisors took issue with executives' earlier public comments after the transition weekend, such as the idea that the conversion had been so uneventful that Schwab Advisor Services Managing Director Tom Bradley found it "kind of boring." The loss of many Veo One "tech capabilities that they somehow decided not to add to the SAC platform" caused some "broken trust" that's "going to be very hard to repair," Veres said.
Advisors have been asking him how to "petition Schwab to add Veo features and generally improve the user experience to what they were accustomed to," he said.
"My response is that if Schwab had three years to do that, and declined, then advisor petitions are unlikely to change their minds," Veres said. "But you'll see a lot of advisors reaching out to other custodians, petitioning for all those same conveniences and making them contingent on them moving their business over. THOSE requests will be taken seriously, and you'll see evolution, based on advisor suggestions and feedback, in the custodial ecosystem happening faster than we've seen it before."
As the integration enters its fourth year, each of the logistical operations and recruiting factors will play out individually across the thousands of RIAs using Schwab as their custodian, according to Rubeling. Switching newly defaulted individual retirement account withholdings to a percentage after being able to use specific dollar amounts at Ameritrade represents just one hurdle that "could apply to zero accounts, or if you have your practice set up a certain way, could apply to many accounts," she said. The tax logistics are another potential problem area looming ahead.
"A lot of people who were using the TD Ameritrade platform instead of the Schwab platform were tech savvy," Rubeling said. "They were sold on technology that was a little bit more up to date, that was a little bit more user-friendly and that had a nicer looking interface. Everyone thought they were going to adopt some of the technology that they had purchased. They literally just rolled onto Schwab."