Practice Management

Schwab dips toes into succession financing waters

Program open to firms with $400M in assets, three or more principals

Schwab Advisor Services hopes to have a financing program for internal adviser succession plans in place by the end of the year.
The adviser unit is in the midst of getting about a dozen of its affiliated advisory firms into a pilot of the program, which is aimed at firms with more than $400 million in assets and three or more senior principals, said Tim Oden, head of business development at The Charles Schwab Corp.’s custody unit.
Schwab Advisor Services most likely will partner with the Schwab Bank to arrange loans to junior partners for partial equity purchases of advisory firms from senior partners.
The program is designed to address the major hurdle faced by succession plans: lack of capital by junior advisers to buy into an advisory firm.
While Schwab’s move marks the first formal step among any of the custodians to provide financing for internal adviser succession plans, TD Ameritrade Institutional and Fidelity Investments are considering similar plans.
Late last year, when Schwab executives first outlined the idea, the firm hoped to have the program available by the first half of this year.
The pilot program will help Schwab “understand the ramifications” of succession financing, Mr. Oden said, and “get a gauge on the demand. The demand seems to be there.”
Custodians have informally arranged financing for advisers on a selective basis, but Schwab’s program would be a formal step to address the need.
TD Ameritrade Institutional has also been working on a formal financing program, but spokeswoman Jessica Taylor had no further details.