The Charles Schwab Corp. is currently considering raising fees financial advisors and registered investment advisors firms pay in order to participate in its client referral program, Schwab Advisor Network.
According to its Form ADV filed in September, RIAs who want to work in Schwab’s referral program should have at least $250 million in assets under management when starting with the service. The fee advisors pay to Schwab is 25 basis points, or 0.25 percent, on the first $2 million of client assets. The percentage decreases after that for larger accounts.
But the current fee for referrals has remained stagnant for at least a decade, causing some at Schwab, a leading discount broker and largest custodian for RIAs, to consider a change.
“There’s a substantial demand by advisors to get into that client referral program, and for some RIAs it’s a substantial part of their business,” said one senior industry executive who spoke confidentially to InvestmentNews about Schwab Advisor Network.
In a note to investors this week, Steven Chubak, managing director at Wolfe Research, wrote that during a recent meeting hosted by Wolfe this month in New York, Schwab’s head of wealth and advice solutions, Neesha Hathi, discussed potential changes at Schwab Advisor Network, or SAN.
“During the fireside, Hathi noted that [Schwab] has not adjusted pricing on its SAN offering for roughly a decade, and that the firm is looking into raising pricing given how important referrals are to its RIA clients,” Chubak wrote.
A spokesperson for Schwab, which is holding its annual meeting for RIA clients this week in San Francisco, confirmed the company was assessing its referral program.
“We have not changed the advisor participation fees for Schwab Advisor Network, a core component of how we deliver on the holistic wealth management needs of our clients, for many years,” the spokesperson wrote.
“As the scale and complexity of the program has evolved, we are evaluating the advisor participation fees going forward,” the spokesperson added. “Our commitment is to first being transparent with firms in the program as these decisions are made.”
It’s not clear how much annual revenue Schwab generates from its Schwab Advisor Network referral program. But the program is undoubtedly significant for some RIA’s; Peter Mallouk’s firm, Creative Planning, with $325 billion in client assets, receives client referrals from Schwab through the program, according to its Form ADV. Creative Planning also uses other client referral programs.
After a client reaches $2 million in assets, the percentage amount Schwab charges decrease: 20 basis points on the next $3 million, 15 basis points on the next $5 million and 10 basis points for amounts over $10 million.
“The participation fee is calculated as a percentage of the assets in referred clients’ accounts that are maintained in custody at Schwab,” Schwab’s filings with the SEC stated. “For assets in clients’ accounts that are maintained at, or transferred from Schwab to, another custodian, advisors pay Schwab a one-time program transfer fee.”
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