As Charles Schwab quietly announced its plan to expand into local markets with its Schwab Wealth Advisory branches, fears within registered investment advisory firms are starting to heat up, as they question the motive behind Schwab’s SWA offices.
Currently, Schwab has 20 SWA offices across various markets and aims to open an additional 10 new branches by next year, after initially starting the year with four offices.
To fully support the rollout, Schwab recruited over 200 in-house wealth advisors last year and continues to hire “like crazy,” said Neesha Hathi, Schwab’s managing director and head of wealth and advice solutions, during the company’s recent Institutional Investor Day conference.
Considering Schwab’s larger goals of expanding its retail-facing wealth business, RIAs are beginning to fear an increase in competition for services and clients, despite Schwab’s efforts to ease concerns from advisors.
“[RIAs] have to be really careful about the partners they pick,” said Mike Watson, SVP and head of RIA custody at Axos Advisor Services. “One day you may wake up and find that this particular firm that you’ve relied on from an infrastructure standpoint is now converging.”
Watson goes on to note that even though Schwab’s RIA custody unit remains a large growth engine for the firm, RIAs need to continue thinking about “every single transaction” and methodology for their business and clients.
Despite Schwab’s head of Advisor Services Jon Beatty, stating that Schwab and RIA clients “rarely bump into each other,” and that there’s “more than enough for everyone to have success,” industry experts have contradicted that comment, believing it’s a move that can be “very concerning” for independent advisors.
“It’s a very lucrative business,” said Timothy Welsh, founder and president of Larkspur, CA-based consultancy firm Nexus Strategy. “Schwab is just one ginormous tech platform, and if you’re a breakaway broker, or you’re coming out of Merrill as a team, you’re going to look twice now at Schwab. Before that would have been the default, but you might look elsewhere for your opportunities.”
Welsh also served as a former executive in Schwab’s RIA custody division for six years from 1999 to 2006, according to his LinkedIn profile.
Schwab Wealth Advisory manages $268 billion in total assets, marking a 25% increase year-over-year, and Schwab Advisor Network, the custodian’s client referral program, reported managing $355 billion in total assets, which also saw a 25% increase year-over-year.
While Schwab has dominated the industry as the primary custodian, with platforms like Fidelity Investments trailing Schwab, wealth competitors like Goldman Sachs are also attempting to advance their position in the RIA custody business.
“[Schwab] will never change. They’ll never stop moving the ball forward another two inches until they cross the goal line. They’re still too committed, and too profitable not to do it,” Welsh said.
As the strategic play from Schwab opens a lot of questions for RIAs, this isn’t only a competition for clients, but it’s a “competition for talent and for mindshare,” said Mark Tibergien, an industry consultant.
“It isn’t just about bumping into people,” Tibergien said. “But it’s this whole notion of whose brand will be outstanding in the 30 markets where they’re going to establish a market presence.”
Tibergien previously served as the CEO of BNY Pershing’s RIA custody division from 2008 to 2020, per LinkedIn.
For advisors to push the needle and ease the tension, they need to be able to provide more tailored services to foster deeper, personal relationships with their clients, Watson said.
“Instead of trying to be pedestrian and creating broad-based models that apply to all — go in on the customization, go deeper, identify a niche, and help that climb with their full financial life.”
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