Schwab builds branch networks using RIAs

The Charles Schwab Corp. plans to build its branch network by setting up new outlets run by independent operators. In a presentation to analysts Feb. 3, chief executive Walt Bettinger said that some of the independently run branches could be headed by outside financial advisers who use the custody services of Schwab Advisor Services. “We've received some indications of early interest from RIAs at the smaller end of the [assets under management] scale who are in-trigued with converting to this [independent branch] model,” he said. It is unknown how many of the new branches might be run by registered investment advisers or how well that setup might work. The independent offices will be run by managers who aren't em-ployees of the company, but the outlets will market and sell all the same products and services that Schwab's existing branches offer to do-it-yourself investors. Mr. Bettinger declined to get into details about the new setup, including how the independent branch operators would be paid. The firm will begin beta testing the new model in the third quarter of this year with a “modest” number of the new outlets, he said. The eventual goal is to “significantly expand” the network of 305 Schwab retail branches into communities that aren't served by the company, Mr. Bettinger said. He dismissed concerns that the independent branches might compete with the 6,700 advisers who have $655 billion in custody at Schwab. The independent branch operators will target mass-affluent clients who have lower asset levels than Schwab-affiliated RIAs, Mr. Bettinger said.

REFERRING CLIENTS

The firm's RIAs “use more-sophisticated, individualized solutions, whereas our retail business focuses on more-standardized, scalable solutions,” he said. The independent branch operators will also refer suitable clients to Schwab RIAs, Mr. Bettinger said. Schwab this year also plans to introduce a 401(k) plan offering using all index funds. In the first half next year, the company will have an all-exchange-traded-fund 401(k) plan that offers true intraday trading, Mr. Bettinger said. The all-ETF plan will be unique in the industry, he said. “No one of scale and consequence in the industry has the motivation to tear down [an active management 401(k)] business model that may be critical to their ... success,” Mr. Bettinger said. RIABiz reported Schwab's plans last week. E-mail Dan Jamieson at [email protected].