The growth of Schwab Wealth Advisory, Schwab's full-service wealth management offer for retail investors, has rekindled fears among some RIAs that the industry’s top custodian is competing with them for clients, but the company is rejecting that notion.
Schwab Wealth Advisory (SWA) has offices in 20 “affluent” markets and plans to reach 30 office locations by the end of this year after starting with just four SWA offices. Schwab hired over 200 in-house wealth advisors last year and plans to hire at the same pace this year, managing director and head of wealth and advice solutions Neesha Hathi said during the company’s Institutional Investor Day conference on May 14.
“We've also invested significantly in sales and wholesaling and distribution. A few years ago we actually didn't have a business development function supporting Schwab Wealth Advisory,” said Hathi. “We now do, and it's proven to be quite successful.”
Net flows for Schwab Wealth Advisory reached $8 billion in 2022 and hit $25 billion last year, which represented a 47 percent jump from 2024’s $17 billion in net flows. During Schwab’s mid-year virtual press briefing on May 28, head of advisor services Jon Beatty was asked if Schwab was concerned if RIAs will see Schwab as a retail competitor as it opens more Schwab Wealth Advisory branches.
“These are not branches that people walk into. These are centers where our wealth advisors work more often than not virtually with their clients,” Beatty said Thursday. “Sometimes they will be in the branch, a traditional Schwab branch, meeting with the client and their financial consultant to go over the portfolio.”
News of Schwab’s plans to expand its in-house advisor locations prompted LinkedIn posts from advisors such as Bone Fide Wealth president Douglas Boneparth and 401 Financial’s Tyrone Ross, curating dozens of comments around concerns of RIAs feeling threatened by their custodian.
Andrew Herzog, advisor at the Texas-based RIA The Watchman Group, told InvestmentNews that he “feels confident going head-to-head” with any Schwab representative.
“It's all about alignment of incentives and quality relationships, not to mention tax planning that Schwab doesn't even offer,” said Herzog. “Our incentives are as closely aligned with the client as possible, selling them our service. We are not in the business of selling Schwab products (ETFs, money markets, sweeps, PALs), while a Schwab employee might push those.”
Gabriel Shahin, founder of the California-based RIA Falcon Wealth Planning, referred to the latest advisor office expansion from Schwab as “direct competition.” Both Falcon Wealth Planning and The Watchman Group have custody relationships with Schwab, which provides services to more than 16,000 RIA clients across the U.S.
“It is the real deal. They do have all the tools in the world to do it. I just hope they [Schwab] don't forget that a majority of the assets and even revenue is from RIAs,” added Shahin.
This is not the first time that a move from Schwab has stoked concerns of client competition between RIAs and their custodian. In July, Schwab aborted a plan to reach out to high-net-worth clients who had both a retail account and RIA assets custodied with the firm. The canceled outreach originally intended to promote Schwab’s in-house investment offerings.
“We often say when we're with clients, whether it's on stage or personally, or in small groups, feel free to email me anytime you feel like you're in a competitive position with our retail business model. In the last 12 months, I've gotten one email, and we resolved it in about 15 minutes,” Beatty said Thursday.
Schwab Wealth Advisory most recently reported managing $268 billion in assets, a 25 percent year over year increase. Schwab Advisor Network, the custodian’s client referral program for member RIAs, reports $355 billion AUM and also grew 25% YOY.
“There's a $37 trillion opportunity out there for all of us. We rarely bump into each other in the marketplace,” Beatty said. “Schwab Wealth Advisory has been around for over a decade within Charles Schwab. It is an offer that is well utilized across our vast branch network. Financial consultants refer their clients in their time of need when they ask for more help to the Schwab Wealth Advisory business model, as they do sometimes to the Schwab Advisor Network.”
After Beatty’s comments on Thursday, a spokesperson for Schwab told InvestmentNews that “there are no Schwab Wealth Advisory branches. Schwab's retail branches are client-facing locations staffed by financial consultants and branch teams members who serve clients face-to-face on a daily basis.”
“They continue to operate the same local branch network model that they have for decades,” wrote the spokesperson.
A Schwab spokesperson told InvestmentNews in December that about 100 to 150 RIAs typically participate in its Schwab Advisor Network referral program. In addition to last year’s 5% fee increase for participating RIAs, Schwab Advisor Network raised its client asset minimum from $500,000 to $2 million in order to be eligible to be referred to an RIA.
“There is no other custodian that has referred more business to advisors than Charles Schwab, and I think by multiples,” Beatty said. “So that's how much we believe in the RIA business model, that we would refer our own retail clients at the scale that we do every year for advisors.”
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