Schwab makes greater effort to help smaller RIAs

New Center of Excellence rolls out the red carpet for firms managing less than $100 million

Oct 26, 2018 @ 2:21 pm

By Jeff Benjamin

Schwab Advisor Services ran the numbers and realized smaller advisory firms can represent a bountiful future for the $1.3 trillion custody business.

With that in mind the nation's largest custodian has been ramping up its new Center of Excellence aimed specifically at registered investment advisers with between $25 million and $100 million under management.

Jalina Kerr, senior vice president of Integrated Solutions at Schwab, said the enhanced focus on smaller firms came as a result of research into how the custodian was servicing and working with advisers that are often segmented, sometimes intentionally and sometimes not, by assets.

"Before, we would hear clients say things like, 'We know we're small, so we probably don't' have access to these services,'" Ms. Kerr said.

In many cases, she added, the services related to practice management or fintech were available to smaller advisers, but the message was not being delivered or received.

"The nuance is they didn't know they had access, and now we're doing a better job," Mr. Kerr said. "Now we have people baked into the center to help them know where to go."

Custodian competitor Fidelity Clearing & Custody Solutions doesn't have the same kind of formal program aimed at smaller RIAs but does confirm various efforts dedicated to this category.

"For the smaller RIAs we work with, we first seek to understand their goals," said David Canter, head of Fidelity's RIA segment.

"If they want to grow, we engage via coaching programs, by connecting them to local consultants in their area, and by delivering practice management around client segmentation, hiring and building centers of influence," he added. "We also seek to build a community of small RIAs through events around the country, so they can make connections and learn from their peers."

Schwab, which next week with unveil its benchmarking research on the growth potential of smaller RIAs at its annual conference in Washington, D.C., has 70 employees devoted to the Center of Excellence.

Schwab doesn't detail its RIA client base beyond total custody assets, but Ms. Kerr confirmed that Schwab serves more clients with between $25 million and $100 million than any other custodian.

"They represent a huge opportunity," she said. "Advisers with under $100 million represent 70% of the addressable market. And we have to make sure we have resources for those clients."

In the research leading up to the enhanced effort on smaller RIA clients, Ms. Kerr said it became clear that the industry often looks at smaller advisory firms as businesses that are content being small.

"What we really found in that research is that smaller advisers are not that different than larger firms when it comes to needs and challenges," she said. "We set out to do some myth-busting, and we found that 90% of those smaller firms want to continue to grow, and that they're excited about ways to harness and embrace technology."

Ms. Kerr added that, contrary to popular belief, smaller firms tend to be faster adopters of technology than many of their larger counterparts.

"We were surprised by that," she said. "We found that operating efficiency is not an option for firms that are capacity constrained."

Some of the changes aimed at smaller RIAs are subtle, such as including younger firms in marketing campaigns, and some of the effort involves making products and services more accessible to smaller firms.

But there are also changes being made that could immediately impact the bottom line of smaller firms.

PortfolioConnect, for example, a free cloud-based portfolio management platform still in the pilot rollout phase, is expected to appeal specifically to smaller firms.

And as an example of how Schwab is trying to get away from working with RIAs based solely on their assets under management, smaller RIAs that use a lot of mutual funds are being offered reduced trading costs, which is something that had traditionally only been offered to the largest RIAs.

"We're the largest custodian and we know that sometimes when people are contemplating going independent or starting a firm they might look at Schwab as this big machine," Ms. Kerr said. "We're shining a light on how we are available to advisers of all sizes."


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