In a move that could create a price war among custodians of registered investment advisers’ assets, Charles Schwab Corp. said today it will waive commissions on electronic equity trades and reimburse account-transfer fees to new clients of independent investment advisers whose assets are held in custody at the San Francisco-based firm.
The offer is good from the beginning of July through the end of 2009, and will remain effective for new-account trades made through June 30, 2010.
Schwab would not discuss how much revenue it expects to forgo because of the offer.
“Implicit in this is that if it’s right by the client, the client will reward us in the long run,” Jim McCool, executive vice president in charge of institutional services at Schwab, said in a telephone interview. “These advisers have gone through a period where markets have eroded a tremendous amount of revenue from their base, and we are able to leverage our cost advantages as a company to help them get through the trough.”
The moves recognize the reality that most advisers today are focused on smoothing their existing client relationships and rationalizing their business operations, leaving little time to attract new clients, the company said. Although the program is aimed at helping advisers who hold assets in custody with Schwab to build their businesses, any new firms who bring new assets to Schwab by yearend will be eligible for the program, Mr. McCool said.
In addition to the equity commission waiver, Schwab is waiving maintenance fees between July 1 and June 30, 2010, for any advisory firm that licenses its portfolio management software. More than 2,200 of the firm’s approximately 6,000 RIA clients use the software, which Schwab markets as PortfolioCenter.
Schwab also said that by yearend it will upgrade its servicing and technology for independent advisers, including a redesigned technology platform centralizing and integrating features of its website and desktop applications. It also is unveiling secure e-mail functionality between certain advisers and Schwab service representatives and creating a new program to help advisers run their own back offices more efficiently. The new services will be rolled out by the end of the year, the company said.
Every firm that holds assets for independent advisers must make these kinds of technology changes if they are committed to the business, said Mr. McCool, who took the combined reins of Schwab’s services for independent advisers and its corporate retirement plan offering last year. He had previously been in charge of the retirement plan business only.
Competitors can match Schwab on the pricing initiatives if they want to, but “this isn’t about creating pricing wars,” he said.
At the same time, he said he doesn’t see anyone else in the industry unveiling technology that redefines operations and processing for clients to the extent that Schwab is planning. Competitors Pershing LLC of Jersey City, N.J., a Bank of New York Mellon Corp. subsidiary, Boston-based Fidelity Investments and Omaha, Neb.-based TD Ameritrade Holding Inc.’s institutional arm have unveiled significant technology upgrades.
Schwab is the leading custodian for independent advisers, with about 25% of market share measured by assets. About 25 years ago it became the first broker-dealer to focus on custodial services for independent advisers who were using its discount brokerage and mutual fund supermarket services for their clients.
The moves come at a particularly difficult time for independent advisers, most of whom are compensated with fees based on the amount of a client's assets they help manage. After several years in which their practices have registered gains of 20% or more annually, revenue per client is expected to fall 25% from its peak, according to a benchmarking study Schwab released earlier this year.
For more on this story, see the upcoming June 29 issue of InvestmentNews.