Advisors object to canceled Schwab letter targeting high-net-worth RIA clients

Charles Schwab has stopped its plan to message wealthy clients of RIAs, following pushback from independent advisors who custody assets with Schwab. The canceled outreach originally intended to promote Schwab’s in-house investment offerings to clients who hold both a Schwab self-directed retail account and have separate assets custodied via Schwab’s RIA channel.

“Last week, in order to ensure transparency, we informed advisors of a planned letter to investors who hold $1M or more in a Schwab retail account. The letter was intended to notify these clients of specific service and pricing benefits they qualify for based on the size of their retail accounts,” a Schwab spokesperson wrote in an emailed statement to InvestmentNews.  

Schwab intended for its outreach to begin on July 30, according to an advisor at an RIA who reached out to InvestmentNews to share his concerns about the planned messaging. A copy of two drafted letters published by Advisor Hub shows that Schwab planned to notify clients that they qualified for private client and private wealth service tiers offering various wealth management, credit and banking services. 

“We decided to cancel the letter to avoid confusing investors and/or advisors. Our Contact Policy is clear and non-negotiable and has not changed,” reads Schwab’s statement. “Schwab’s retail teams will not proactively reach out to clients about their advisor-managed assets. In this case, the communication wasn't as clear as it should have been so we made the decision to cancel. We have great respect for our advisors and for the relationships they have with their clients.”

Schwab is the industry’s largest RIA custodian with nearly $4.7 trillion in assets under its Schwab Advisor Services division. The firm also holds about $6.1 trillion in its Investor Services direct-to-consumer unit. The advisor who reached out to InvestmentNews has around $500 million in assets held through Schwab’s RIA custodian platform. A portion of his email to Schwab is shared below, but InvestmentNews will keep the advisor anonymous. 

“Having worked in this industry for over 38 years, I have always placed tremendous value on Schwab’s historic commitment to supporting the independent channel,” reads the email an advisor sent to Schwab executives before the client outreach was canceled. “Your platform has long been a trusted custodian for RIAs, in part due to the clear separation between RIA custody and Schwab’s retail brokerage business. This new initiative, however, presents a fundamental change to that relationship and, in my opinion, a violation of the spirit of trust and partnership Schwab has built with advisors.”

InvestmentNews also spoke to another advisor from a Texas-based RIA who has a custodian relationship with Schwab and said he was "disappointed" in Schwab's planned outreach to clients of RIAs. The Schwab-led RIA custodian business includes competition from fellow giants such as Fidelity and Pershing, with others such as Altruist and Interactive Brokers also fighting for market share. 

Sovereign Financial Group founder Chuck Failla says that any potential further attempts from Schwab to market its in-house investment services to client from its RIA channel could result in Schwab losing market share in the RIA custodian space. Failla’s RIA manages $1 billion in client assets with its majority custodied via Raymond James and a smaller portion held under Schwab. 

“The commonality between Interactive Broker and Altruist is that they're quite good. They're far less known than Schwab and Fidelity and Pershing, but I think they're going to gain more market share, especially if that type of behavior continues,” Failla said. “That competition I think will quite easily ensure that Schwab doesn't send out these types of mailers.”