Years of planning come to a head as Schwab’s TD migration approaches

The warm months of 2023 haven’t been a vacation for Charles Schwab Corp.

Investor scrutiny of Schwab began in March after the collapse of several midsize banks. In July, Schwab reported a data breach had occurred in May that may have impacted up 61,000 TD Ameritrade customers and could bring on a class-action lawsuit. More recently, the company reported temporarily lower net flows of money as a result of retail investor and financial advisor attrition from TD, as well as a plan to cut $500 million in annual costs through layoffs and office closures.

Now Schwab is facing one of the biggest milestones in company history. Over Labor Day weekend, Schwab will transition more than 7,000 registered investment advisors and nearly 4 million client accounts off TD’s custodian platform and on to Schwab Advisor Services.

The expectation is that RIAs will come to work on Tuesday and find all their clients, accounts and holdings displayed accurately on Schwab Advisor Center, the firm’s digital dashboard for advisors. Success could go a long way toward righting the ship; getting it wrong could accelerate advisor attrition and make an already tough 2023 even tougher.

So how is Bernard Clark, managing director and head of Advisor Services, feeling?

“I’m feeling very, very confident, very good about where we are,” Clark told InvestmentNews in an exclusive interview.

Part of that confidence comes from Schwab’s market position. With the TD advisors officially in the fold — the culmination of a process that began in October 2020, when Schwab closed on the $22 billion acquisition — Schwab will have, by far, the largest support, asset custody and trading platform for independent advisors in the industry, Clark said. This is especially important in what he calls “a skinny business” that requires scale and volume to be profitable.

“We’ve created the best capability for independents to compete in the marketplace, which is the fastest growing segment of the industry,” Clark said. “TD was not our largest competitor but our fiercest competitor … Really what we’ve done is bring together the capabilities of both of these platforms and I think advisors are really excited to participate.”

He’s also encouraged by how engaged TD advisors are with the additional educational resources, training sessions and support staff Schwab has invested in. The company has hosted more than 50 education events representing 100 hours of content regarding the integration. These were attended by 60,000 people from 5,000 firms, resulting in 16,000 questions fielded by Schwab. There have also been virtual events, digital modules and a 115-page guide, and Schwab has at least 20 post-transition webcasts planned.

“We’ve put a lot of thought into the training because we know just from experience that everyone learns a little bit differently,” said Jessica Heffron, managing director of Advisor Services integration. “We’ve taken a multichannel approach to meet advisors where they learn best.”

WHAT ADVISORS ARE SAYING

Overall, more than 98% of firms have taken steps to prepare for the transition.

The team at Schulz Wealth, an RIA based in the Dallas-Fort Worth area with $285 million in assets under management, is one firm that has taken advantage of the tools and resources Schwab provided. The firm exclusively custodied assets with TD since launching in 2014 and was so concerned about how the acquisition would impact its technology and clients that it explored some of Schwab’s market competitors, said Rob Schulz, president of Schulz Wealth.

“Fortunately, Schwab put us with a really good relationship manager,” Schulz said. “We decided to embrace the process and get ahead of it.”

The transition is a complicated process with a lot of moving parts, and some things are going more smoothly than others, he added. But the firm has received the information needed to make sure staff and clients feel confident about the change.

“We feel prepared and like we can start fresh [on] Tuesday and be off to the races,” Shulz said.

Eric Raether, founder of Canopy Wealth Management, a $1.2 billion RIA operating in Arizona, Michigan and Wisconsin, credits Schwab’s JumpStart program, which allowed some TD advisors to start onboarding new clients with Schwab, with preparing his firm for the transition.

“Quite frankly, there is plenty of opportunity to learn about [Schwab’s] systems, but for me — and, I would say, for most people on our staff — it’s one thing to sit through a webinar; it’s another to actually start opening accounts and processing paperwork,” Raether said. “You just can’t replicate that.”

While he anticipates there will be some bumps along the way, Raether feels his firm is much better prepared than those who haven’t taken the time to explore Schwab’s platform.

“A lot of TD advisors have not opened a single account yet and next week will have thousands of accounts at Schwab and having to learn on the fly,” he added. “I feel pretty good that [my staff] understands the new systems, the new forms and the new processes.”

LINGERING CONCERNS

Both firms have some lingering concerns. For example, Schulz is worried about ACH links with client bank accounts used to move client money, while Raether is wondering about data feeds with third-party technology his firm uses.

However, not every firm got access to the JumpStart program. CG Advisor Network, a firm managing $3.1 billion across 70 advisors, asked for the ability to open new client accounts with Schwab but was held back, according to CEO Tony Mazzali. This and “sparse” communication from Schwab contributed to CGAN’s decision to form new custody partnerships with Axos Advisor Services and LPL.  

“On how the transition would be done, that’s where the details would be clear,” Mazzali said. “What’s been really unclear is who we are doing business with and what’s the environment going to be like from a vision, culture and strategy standpoint.”

A spokesperson for Schwab said the JumpStart program “was by no means exclusive,” and was “widely announced for nearly 12 months through numerous client webcasts, emails and outreach by relationship managers.”

For the assets CGAN maintains with the custodian, Schwab has done good job communicating what is going to happen, Mazzali acknowledges. Even if there are technical hiccups, that shouldn’t be a mark against Schwab’s efforts, he said.

“It was going to be disruptive no matter what for us,” Mazzali added. “The expectation that it goes off without a hitch is not fair. I hope it does go well, and I hope that clients and advisors wake up Tuesday and it’s business as usual.”

Others are less confident in Schwab’s ability to service the influx of new advisors coming from TD.

“We made the strategic decision to pull our firm of approximately $220MM from their service platform and we decided to move to LPL Financial to a more custom designed platform for our firm and our clients,” James Loftin, CEO and co-founder of GER Loftin Wealth Advisors, said in an email. The firm had been on TD’s custodian platform for 14 years.

While Schwab has staffed up extensively to weather the storm, Heffron said it anticipates wait times for service will still be longer than usual. But the firm’s executives are less concerned about the technical aspects of the data migration. Test conversions have been successful, and despite some social media grumblings, the shift of retail investors over Memorial Day weekend was a success, with attrition numbers in line with Schwab’s projections (roughly 4% of Ameritrade revenue before the deal, or 1% of combined assets, Bloomberg reported). Most service calls regarded credentials and login access, Heffron said.

‘MEET US IN THE MIDDLE’

What keeps Heffron up at night is the 2% of advisors who haven’t taken any steps to prepare for change. There are RIAs that took some initial steps but aren’t fully prepared to handle client requests on day one.

“We need advisors to meet us in the middle and do their part,” she said. “I can’t make an advisor emotionally feel better about this. If I could use a wand and make that change management time as small as possible, I would.”

Even with just a few days before the transition, Heffron urges advisors to check that they and their clients have credentials to log in to the new system. She also urges advisors take time to become familiar with Schwab’s website and Advisor Center, and to prioritize key activities to ensure business continuity after Labor Day.

“The challenge is it does take time, and if I could plead with advisors, [training] is probably the best investment of time they can make right now,” Heffron said. “We know the pressures they feel from clients with those urgent transaction requests.”

For Clark, the biggest concern is what comes next: delivering the bigger and better version of Schwab that advisors who make the transition will demand.

“There’s a very high expectation that we’re going to take this platform to new heights,” Clark said. “My worries lie more with the future deliverables of our platform and the future capabilities.”

The ongoing growth of fee-only advisors; an aging population and generational wealth transfer; the emergence of artificial intelligence and the role it will play in wealth management; and the role Schwab has to play as an advocate for financial advisors in Washington, D.C., and in schools around the country — these are some of the big-picture issues Schwab is worried about as the market leader, Clark added. He also welcomes a new generation of competition in the market hoping to use the merger to lure away disaffected advisors.

“Startups will continue to give us ideas and push us in directions, and some advisors may elect for those,” Clark said. “We are going to be in this business decades into the future. I’m not sure everybody else is.”

[Editor’s note: This article was updated to include additional detail from Schwab about the JumpStart program for TD Ameritrade advisors.]

Related Topics: Charles Schwab Corp., TD Ameritrade