What will Schwab cut from TD’s Veo One?

The technology that will make the cut largely depends on adviser engagement, according to a Schwab executive

Charles Schwab executives have remained tight-lipped about the fate of TD Ameritrade Holding Corp.’s Veo One platform but the megamerger will certainly leave some of the 180 third-party vendors on TD’s platform left behind.

The criteria for determining which third-party vendors on Veo One will make the cut onto the Schwab Advisor Center — which will serve as the foundation for the combined Schwab-TD technology platform — will be determined on adviser engagement and redundancies, according to Andrew Salesky, senior vice president of Digital Advisor Solutions at Schwab.

“Those parties that we don’t have a relationship with, how active are they with TDA?” said Salesky during a press call Thursday. “Are [the third-party vendors] really well leveraging the API’s that TDA makes available and are advisers engaging with those partners — those are the factors into our build out.”

According to InvestmentNews’ 2020 Adviser Technology study, CRM platforms have the greatest market share among advisers usage at 89%. Following suit is financial planning software (83%), portfolio management (75%) and document management (65%).

The big question is: Which third-party vendors will get the boot? While Schwab has announced TD’s thinkorswim, thinkpipes trading platforms and iRebal will be a part of the combined tech platform post-migration, other tools on Veo One, like AdvisorClient, are still up in the air.

The software types with the least amount of adviser market share include compliance (41%), digital marketing (40%) and risk analytics (39%), according to the InvestmentNews research.

TD’s Veo One breaks down it’s vendors into eight categories: analytics, CRM, document management, financial planning, office tools, online advice, portfolio management, and trading and rebalancing, according to its website. With the trading and rebalancing tech likely set in stone, the other areas — along with the vendors that fall into those categories — could get dropped in the migration.

Another unknown is the quality of the integrations themselves. Some will likely be available post-migration from TDA to Schwab but those integrations may be less seamless, according to Alois Pirker, a research director at Aite Group.

“As an example, applications that are part of Veo One can participate in workflow integration that includes multiple third-party applications, i.e., TDA orchestrates how various third party applications interact with each other,” he said. “This might be lost post-migration.”

Further, the very niche applications only integrated with TDA, but not with Schwab, will likely not be available post-migration unless the vendor takes steps to integrate with the Schwab APIs, Pirker said.

“The precise impact is hard to predict as the migration of the TDA business to the Schwab platform will not happen for some time,” he said. “I would expect not before 2022. This time will be used by third-party vendors to deepen the integration with Schwab APIs.”

However there are certain Schwab tools that the firm is “looking forward to sharing the benefits” with TDA customers, Salesky said, including “our fully digital Move Money suite, and our no fee portfolio management system Portfolio Connect and institutional Schwab Intelligent Portfolios,” he said.

ROBO-GIANT

In fact, the larger question for Backend Benchmarking’s head of research David Goldstone is how Schwab will handle integrating the portfolio management with its Intelligent Portfolios platform, he said.

“Built on Money Guide Pro, Schwab’s digital financial planning technology within Intelligent Portfolios is top tier and I assume TD digital advice customers will be migrated to the Schwab platform,” Goldstone said.

“Schwab’s portfolios rely heavily on proprietary ETF’s and Schwab mandates a large cash balance in their portfolios,” he said. “Both of these aspects of portfolios generate revenue to help offset its no-management-fee cost structure at the digital-only level.”

The issue, however, is completely remaking a portfolio usually has tax consequences for the investor. “It is an open question of how Schwab will balance client’s interests with their own as it integrates these two products,” Goldstone said.

Combining Schwab’s Intelligent Portfolios with TD Ameritrade’s Essential Portfolios would solidify Schwab’s position as the second-largest robo-adviser behind Vanguard.