brokersXpress not an option for Schwab

MAY 20, 2012
Some 325 brokers and registered investment advisers are hustling to find new homes in the wake of The Charles Schwab Corp.'s announcement last week that it is closing down brokersXpress LLC, an independent broker-dealer for representatives and financial advisers who trade options. “This was not a cost-cutting effort,” said Schwab spokeswoman Susan Forman. “It was more of a philosophical decision.” The company will focus on fee-based registered investment advisers who use its custodian group, Schwab Advisor Services, rather than on brokers who charge a commission for trades, Ms. Forman said. Schwab bought optionsXpress Holdings Inc. last year for about $1 billion; brokersXpress was part of that deal. The purpose of that acquisition was to enhance Schwab's options and derivatives offerings for retail clients, Ms. Forman said. She called brokersXpress “an extra, if you will,” adding that it became apparent that it wasn't feasible to integrate the brokersXpress model into the custody offering of Schwab Advisor Services. Barry Metzger, chief executive of brokersXpress, referred calls seeking comment to Ms. Forman. The reps and advisers with brokersXpress have 90 days to find a new home, said Ms. Forman, adding that the majority of the firm's employees will be “redeployed” to optionsXpress or Schwab Advisor Services.

REDEPLOYMENT

Observers were surprised that Schwab decided to close the firm rather than sell it, particularly at a time when private-equity managers are buying broker-dealers of all stripes. Consolidation among independent broker-dealers has been widespread since the 2008 credit crisis, and the overall number of broker-dealers registered with the Financial Industry Regulatory Authority Inc. is down 11% over the past five years. Ms. Forman said that it would have been “complex” to separate brokersXpress from optionsXpress, given how entwined the two are. Closing down brokersXpress “gives advisers the most options to determine their own fate,” she said. “The Schwab decision to dissolve [brokersXpress] caught the advisers off guard, as we've been told that until [last Wednesday], the parent company had been representing to the sales force they were committed to the BX platform,” said Bradley Fay, president of IBDSearch LLC, a recruiting firm. “We're also told that the back office will stop opening new accounts this summer,” said Mr. Fay, who added that he has spoken with seven or eight brokersXpress teams that represent 15 producers generating between $150,000 and $600,000 in fees and commissions annually. Independent broker-dealers catering to brokers who charge fees for trading and options, rather than on a percentage of clients' assets, are few and far between. The firm's ticket charges for trades were lower than usual, and reps will have difficulty finding a firm that charges similar fees, observers said. “The reps are not a fit for a lot of independent broker-dealers out there,” said Jonathan Henschen, an industry recruiter. “A lot of firms are not friendly to transactional reps,” said Mr. Henschen, who added that he has spoken to about 10 brokersXpress advisers. [email protected]

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