Is Schwab a Competitor? Depends on Who You Ask

Nothing wrong with a little friendly competition. But in this case, your friend happens to be valued at more than $100 billion.

During the keynote at Charles Schwab’s Impact conference Wednesday, CEO Rick Wurster faced a pointed question: If Schwab doesn’t compete with the independent RIAs it serves, why is it opening more wealth advisory offices while raising the asset minimums for clients eligible for referral to those same RIAs?

Wurster maintained that Schwab doesn’t compete head-to-head with its RIA clients. Instead, he said, retail investors with longstanding relationships with Schwab transition into financial planning clients through Schwab Wealth Advisory. “We do not go out into the local market, looking for more wealth business,” he told an audience of hundreds of advisors.

For some, the answer was reassuring. For others, less so. 

“Wurster’s answer may be accurate, but it doesn’t change the incentive,” said Matt Smith, founder of West Highland Advisors, who custodies with Schwab. “Schwab is sitting on both sides of the table, and as an advisor you can’t help but wonder where the next good prospect ends up.”

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For many RIAs, Schwab is both the landlord and the neighbor, said Alvin Carlos, managing partner at District Capital Management. “They hold our clients’ assets and also run a planning business down the street,” he said. Schwab may not be cold-calling prospective clients, “but when a longtime retail client goes to a Schwab planner instead of an independent advisor, that’s still competition, with a home-field advantage.”

Schwab’s recent moves have only sharpened that tension:

• Starting next year, the firm will raise the minimum assets required for clients to qualify for referrals to independent RIAs through Schwab Advisor Network from $2 million to $5 million. It’s the second increase in quick succession, following a hike from $500,000 in January.
• Meanwhile, Schwab is expanding its physical footprint for wealth management. The firm currently operates advisory offices in 20 affluent markets nationwide and plans to be in 30 by the end of next year.

Alright by Me. Not every advisor views Schwab as a competitor, though.

“I’ve been custodying with Schwab for 25 years, and I haven’t had a situation where a client was choosing between us or them,” said Michael Garry, founder of Yardley Wealth Management. Garry welcomed clarification from Jon Beatty, head of Schwab Advisor Services, during the keynote that Schwab does not advertise its wealth advisory offices on television.

Garry also custodies some client assets with Fidelity, which recently told RIAs they must have at least $100 million on its platform to continue using it as a custodian starting next summer. He said he expects to meet the threshold in time but wasn’t pleased with the news. “I never thought of Schwab as my biggest cheerleader, but they have a decent amount of support for advisors, and they never sent me that letter.”