Schwab/TDA Deal: Honey Badger Don’t Care
Let’s get one thing straight: When Malcom Gladwell writes his 2025 bestseller, “Cowboys & Ninjas: Renegades in America,” he’s going to have a whole chapter on the fall of 2019, and the mantle of “ninja” is going to land firmly on Schwab CEO Walt Bettinger’s shoulders.
And that’s because the chief executive officer has proven that Schwab isn’t just a carnivore: It’s a honey badger. Honey badgers just don’t care what the rest of the animal kingdom does to defend themselves: bees, cobras, jackals. Yawn. The honey badger just keeps eating and growing and doing its own thing—and will devour anything that gets in its way. That’s what Schwab’s going to do.
Honey Badger At Work
In a few short weeks, Walt Bettinger took what some considered a potential weakness of Schwab’s (it only gets about 7-8% of its revenue from actual trading activity, versus around 25% for most competitors) and turned it into an extremely sharp sword.
By resetting the trading industry to zero commissions, a move that competitors had no choice whatsoever but to follow, it ensured that its stock price would be hit far less than competitors.
Note that while both firms took an initial hit, Schwab had recovered entirely within a month, while TD Ameritrade saw a 20% haircut in its stock price, and it stuck hard. That’s when ninja-Walt swooped in with the killing blow, slurping up its now-weakened competitor. It was a masterful, completely legal and utterly ruthless move.
So, what does all this mean? Schwab released an obligatory “business as usual” memo yesterday basically saying “wait a year and we’ll tell you what it means.” It really has no choice. In any merger, there’s no reality until the deal is closed (and through potential FTC scrutiny) and the integration begins. But here’s my quick take on “what it means.”
Small Advisors May Feel The Bite
TD Ameritrade is well-known for both courting and servicing small, independent registered investment advisors (RIAs).
Schwab is known for competing for the small RIA’s bread-and-butter clients (admittedly, sometimes through its affiliated advisor network, but also through direct competition from its robo advisor platform). This may be a boost to platforms like Betterment for advisors, or for upstarts like TradePMR, which can now market for the next year on a bit of fear, uncertainty and doubt themselves.
Good For Schwab, Maybe Not The Industry
TD Ameritrade has been known as one of the most open architectures out there, allowing all sorts of cool new ideas to bolt into their application programming interface (API). Given how important tech has become to growing advisory firms, should Schwab kill TDA’s API (known as Veo One), it could really put a damper on innovation.
The flip side, of course, is that Schwab is pretty darned innovative in its own right. But the consolidation of assets isn’t what matters here; it’s the walled garden that is Schwab.
Schwab Is Well Positioned
Schwab is positioned to do some very, very interesting things. In my opinion, Schwab is both the most vertically integrated financial services platform, and the most effectively integrated financial services platform.
The obvious place is in asset management: It’s not just a distributor, it manufactures its own funds and ETFs, and it’s solid. But it also controls almost every component of its business, from recordkeeping to a trust bank to a retail bank to insurance agencies. Pretty much the only thing it doesn’t own is an actual insurance company (and hey, I could be wrong, I know it has agencies).
If there’s one business that this new bigger Schwab reminds me of, it’s Amazon.
When Amazon decides to disrupt something, it simply doesn’t have to care who it annoys or what apple carts get toppled.
Schwab’s the same way. If it decides to offer free banking, or zero-cost ETFs, or fractional-share 401(k) holdings, or no-cost life insurance with every brokerage account, it can simply decide to do so. It doesn’t need to negotiate with partners, or worry about competing interests. And it clearly isn’t worried about whether a new venture will annoy its shareholders.
ETF Issuers Put On Notice
Other ETF issuers should be on notice. Schwab is in a unique position to look out over its vast sea of clients and simply invent the future of financial services. BlackRock, State Street and Invesco don’t have that luxury, because they don’t own most of their customer relationships. Vanguard and Fidelity, arguably, are in the best position to compete, but so far, they’ve been quite conservative and have picked their battles carefully.
The good news for advisors and individual investors is that this will take a significant amount of time to play out, and it’s in Schwab’s strong interest to make all of these moves slowly, deliberately and with as little customer disruption as possible. But to me, this is one of the biggest, most interesting stories I’ve seen in years, and it’s going to be exciting to watch.
P.S. If you want to figure out what this means for advisors over the next year, I know where I'll be checking every day: Kitces.com.
Contact Dave Nadig at dnadig@etf.com
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