Schwab offers independent advisers access to hot debt market

Firm hopes the move allows it to compete with Wall Street brokerages

Mar 17, 2014 @ 11:14 am

By Trevor Hunnicutt

+ Zoom

The market for new debt is hot, and independent advisers are starting to get in on the action, according to The Charles Schwab Corp.

Schwab, which recently renewed a deal with the leading book runner, JPMorgan Chase & Co., said that registered investment advisers have been showing increased interest in corporate-bond issues. The firm hopes that its ability to offer the debt helps it compete with Wall Street brokerage firms.

Demand for corporate new issues increased by 70% last year over 2012, with the face value of those orders doubling, according to the platform provider and custodian to independent advisers.

Advisers drove much of that demand, according to Peter Crawford, a senior vice president at Schwab.

In a deal announced this month, Schwab said that it will continue to offer access to new-issue and secondary market muni and corporate bonds underwritten by JPMorgan.

The relationship between JPMorgan, an investment bank with no retail brokerage workforce, and Schwab, a platform vendor to more than 7,000 financial advisers but no investment bank, is in part an effort to compete with the offerings of firms such as Bank of America Merrill Lynch and Morgan Stanley.

The two wirehouses have both massive adviser salesforces and a dominant presence in investment banking, building investment products including bonds and equities.

BofA spokeswoman Susan McCabe declined to comment.

Morgan Stanley spokeswoman Christine Jockle wasn't available to comment.

The two wirehouses are have significant incentives to push the bonds through the wealth management side of the business, Mr. Crawford said.

“Our focus on many of our investment platforms and all across Schwab is trying to create an experience for advisers that was equal to or better than what they had at their previous firm,” he said.

The demand was driven in part by fairly liquid markets for corporate debt and high demand for the resale of corporate issues, Mr. Crawford said.

In one popular deal last September, BofA, JPMorgan and Morgan Stanley were key underwriters of a $49 billion debt offering by Verizon Communications Inc.

Demand for new-issue bonds have heated up in recent months — including the Verizon deal, an Apple Inc. offering last April and a Puerto Rican bond sale this month — as investors early to the fast-moving market were able to flip the debt for higher profits, the Wall Street Journal reported Sunday.

Schwab's BondSource offers access to more than 36,000 bond offerings from more than 200 dealers on several trading platforms, the firm said.

The deal extends a partnership first struck in 2010 between the brokerage platform provider and the investment bank that allows JPMorgan to distribute muni and corporate bonds that it underwrites to the more than 9 million retail brokerage accounts served by Schwab, including those served by the advisers on its platform.

Schwab clients have had access to 800 new corporate issues through JPMorgan since 2011, Schwab said.

Schwab clients also have participated in nearly 1,200 muni deals, placing more than 12,300 orders and investing more than $1.9 billion in newly issued local debt.

Mr. Crawford declined to comment on the financial terms of the deal.

JPMorgan spokeswoman Jessica Francisco said that an executive couldn't immediately be made available.

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