Charles Schwab Corp. is the latest major player looking to upgrade its offering of alternative investment products to financial advisors, just as the alternative investment industry is making its full-court press of advisors, broker-dealers, and registered investment advisors.
The connection between alternative investment managers and financial advisors is expected to tighten this year, particularly as the new administration of Republican President Donald Trump is widely considered friendlier to nontraditional money managers than a Democrat would be.
Designed for wealthy clients, alternative investment funds like nontraded real estate investment trusts and business development companies are pitched as noncorrelated assets that don’t mimic the returns of the broad stock market. They typically are more expensive than indexed stock and bond mutual funds or exchange-traded funds and also may have additional risks.
Schwab is the leading custodian for assets of RIAs, which work with the discount brokerage through its Schwab Advisor Services unit.
And Schwab is not alone in rethinking its alternative investment strategy. LPL Financial Holdings Inc. CEO Rich Steinmeier said in October that, to attract wirehouse financial advisors, the brokerage firm was focused on improving its alternative investment and banking programs and capabilities.
Likewise, Schwab’s new CEO, Rick Wurster, said this week that the firm was rethinking its group of alternative investments for financial advisors, following an expansion of alternatives to retail clients who use its discount brokerage platform.
More than 37 percent of financial advisors who custody assets with Schwab use alternatives, accounting for $58 billion in alternatives assets.
“In October, we launched alternatives to a very limited group of clients,” Wurster said Tuesday during a conference call with analysts to discuss Schwab’s fourth quarter earnings. “In terms of the timetable, I think I highlighted it, first half of this year, we should be fully launched in retail. That's our expectation.
“As it relates to advisor services, there's lots of opportunities for there as well,” Wurster said. “Our advisor clients do custody a fair amount of alternative assets with us, and we also have different alternatives programs that we make available here at Schwab.”
“I think the opportunity going forward is [to] offer a more curated set of alternatives to our advisors and to be bringing them to those advisor clients as opposed to primarily being in a position of” being the custodian of the assets, Wurster added.
So far, the firm has been keeping mum to advisors about any plans for alternative investments, according to one advisor who uses Schwab as a custodian.
“Right now, Schwab has communicated nothing to us advisors about alternatives,” said one advisor, who spoke privately about the issue.
When asked how the platform would be curated, a Schwab spokesperson did not answer.
“We are continuously expanding our offerings and capabilities to meet the needs of our clients, including high net worth and ultra-high net worth investors served by the advisors who custody with Schwab,” a company spokesperson wrote in an email. “As demand in alternative investments continues to grow, we are evaluating ways that we can meet these accelerating needs by delivering greater value to our advisor clients, while continuing to drive growth for Schwab.”
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