Displaying items by tag: custodians

(New York)

When Schwab announced its acquisition of TD Ameritrade in November 2019, there was a big and sustained surge of consternation among RIAs. TDA had long been known as specializing in RIAs, especially on the smaller end of the spectrum. Schwab had exactly the opposite reputation. That has left a general void for the smaller advisor looking to go independent for the first time. However, Goldman is apparently ramping up its new custody unit and clearing platform for RIAs. The move is still in its early stages, but the firm is hiring several executives to lead the charge and seems to be aiming to compete with Schwab, Fidelity, BNY Mellon etc.

FINSUM: Advisors may recall that Goldman acquired United Capital in 2019. United was an RIA consolidator, so this seems like a natural step for the bank. In our view, it would be great for the industry to have more competition on the custodial front.

(New York)

Well it took seemingly forever, but it finally just happened—the merger of Schwab and TD Ameritrade has just closed after a lengthy process. It will take 2-3 years for the operational end of the two custodians to become integrated, but in a corporate sense, they are united. The deal has made many RIAs, particularly those on the smaller end, nervous. TD Ameritrade was known for its excellent service of smaller RIAs, whereas Schwab was known for the opposite. Accordingly, many fear that under the new Schwab-led company, smaller RIAs might be forgotten. The combined entity now controls 51% of the RIA market with more than $2 tn in assets.

FINSUM: This is quite concerning for smaller RIAs, many of whom are thinking of switching to Fidelity or smaller rivals. Also of note, Schwab has not formally announced what they are going to do with TDA’s Veo One platform.

(New York)

One of the ways that wirehouses have been trying to make their brokers (and their brokers’ clients) more sticky is by pushing loans. Brokers are encouraged to get clients to borrow money. These loans have the effect of binding clients to firms for long periods, and correspondingly, it makes it harder for brokers to breakaway because clients are more likely to stay put. However, some RIAs are combatting the trend by offering to replace client loans during the transition period when brokers are joining their firms. Perhaps even more interestingly, custodians are getting into the game too, with Schwab announcing recently that they would be increasing lending products available to advisors to help them transition clients away from wirehouses. The loans provided often have lower interest rates than what the wires offer, so the success rate in migrating clients has been quite high.

FINSUM: The loan game has been the domain of the wirehouses for years, but with the big custodians getting involved, this is another important structure that will make breaking away easier.

(New York)

Charles Schwab may have just changed market access forever. The giant custodian and broker-dealer just announced that it was eliminating all trading commission on stocks, ETFs, and options. It is unclear if it is doing the same for advisors on its platform, but it said it would extend the offer to clients of RIAs who trade on its platforms. TD Ameritrade immediately matched Schwab’s offer within just a few hours. Following the announcements, brokerage stocks plunged. TDA fell about 26% and E*Trade fell 16% to new 52-week lows. Estimates are that the change in fees will depress both TDA and E*Trade’s earnings by 22%.

FINSUM: This is a game-changing move. Hopefully they will extend this to all trades for advisors. This is a brutally competitive landscape and retail investors and advisors are seeing the benefits.

(New York)

We became concerned for our advisor readers today when we read an article in the FT warning that many trading platforms are at serious risk of hacking. The article says that many trading platforms, such Charles Schwab, TD Ameritrade, and Interactive Brokers, secure data in an unencrypted or partially unencrypted format, leaving them highly vulnerable to hacking. If a hacker got your password, they would be able to do anything you could on the platform. Generally speaking larger brokers had safer platforms than smaller ones, and both Schwab and TD Ameritrade emphasize that they are making progress on the issue.

FINSUM: This seems like a major risk that has gone ignored. We wanted to make sure to warn our readers as we are aware that many of you use Charles Schwab and TD Ameritrade.