The
Charles Schwab Corp., which promised to spell out details of its plan to help advisers move alternative assets from its platform this month, has nearly met its deadline.
The San Francisco-based firm is in the final stages of negotiating contracts with two
trust banks that will allow them to oversee offshore alternative assets now kept at Schwab without disturbing the process under which advisers receive valuation and other services.
“We will provide an integrated solution ... that can provide what advisers said they need,” said Jim McCool, executive vice president of institutional services.
He declined to identify the banks or discuss how much more the service might cost advisers, who pay nominal setup fees to Schwab and other custodians for holding and reporting values of hedge funds and other privately placed assets.
Schwab upset advisers in February when it told them that they would have to remove offshore alternative assets from its platform immediately, and domestically managed alternatives within a few months.
The company has modified its schedule, Mr. McCool said.
It will continue to provide custody of domestic alternative assets — and permit additions to those positions, if properly documented — pending a “long-term solution” that Schwab and other firms are developing with the Depository Trust and Clearing Corp., a New York-based clearance, settlement and information services firm owned by large U.S. banks.
DTCC in December launched an alternative-investment-products service aimed at linking broker- dealers, fund managers, administrators and global custodians to help process alternative investments.
An enhancement of the service will give brokerage firm custodians sufficient “possession and control” over alternative assets to satisfy regulatory requirements, according to an e-mail from a DTCC spokeswoman. DTCC this week is filing a rule change about the enhancement with the Securities and Exchange Commission, enabling custodians to provide the services their customers want, she said.
Mr. McCool said that he is confident that the SEC will approve the rule and that the service may change “the whole industry's expectations relating to support of alternatives.”
Schwab said it will abandon custody of alternatives because of concern about increased scrutiny from regulators and the
Internal Revenue Service in the wake of scandals involving false valuations and phantom assets.
— Jed Horowitz
