Schwab advisers lure wirehouse clients, do-it-yourselfers

In a market roiled with trouble and strife, advisers who keep assets under custody with Schwab Institutional appear to be picking up clients from wirehouses and do-it-yourself investors at a prodigious rate.
AUG 25, 2008
In a market roiled with trouble and strife, advisers who keep assets under custody with Schwab Institutional appear to be picking up clients from wirehouses and do-it-yourself investors at a prodigious rate. According to a new survey from the San Francisco-based custodian, 85% of the advisers participating in the study said they won new clients during the first half of the year from full-service brokerage firms. Meanwhile, 84% said that during the same time period, they won new clients who had been managing their own investments. Schwab Institutional surveyed 1,010 advisers in the middle of last month for the study. Those advisers kept $208 billion in assets under custody with Schwab Institutional. In total, the firm works with 5,500 advisers who keep $575 billion in assets there.

'ON THE HIGH END'

Independent representatives and advisers have been crowing for some time that they are steadily gaining greater control of the marketplace. For example, Schwab Institutional said it has picked up $9 billion in assets from broker-dealers this year. The proportion of advisers who won clients from wirehouses "doesn't shock me, but it's on the high end of what you would expect," said Eric Schwartz, chief executive of Cambridge Investment Research Inc. of Fairfield, Iowa. The firm has an agreement with Schwab Institutional for its reps and advisers to keep assets with the custodian. Mr. Schwartz said he expected the range of advisers winning wirehouse clients in this market to be between 50% and 90% in such a survey. The credit crunch, mortgage crisis and collapse of the auction rate securities market have demoralized some reps with Wall Street firms, he said. Many of those firms have written down billions in losses this year or reached agreements to pay back investors who bought auction rate securities. Those events look like one large black eye, Mr. Schwartz said. "One broker interested in our firm called and said, 'I would love to hand out a business card without my firm's name on it,'" he said, declining to name the broker's firm. "The wirehouse reps are more restless with all this stuff going on." Two-thirds of the new clients who left a full-service brokerage firm for a Schwab Institutional adviser did so because they wanted more-personalized advice, according to the survey. And more than half the clients said they had lost trust in their previous firm. "This tells you that advisers are winning big from wirehouses," said Bernie Clark, senior vice president of Schwab Institutional. "This is more than a trend; this is the momentum of the market." This is the first time in Schwab Institutional's biannual "Independent Advisor Outlook Study" that it has asked advisers whether they had won clients during the first half of the year from full-service broker-dealers, Mr. Clark said. In recent surveys, Schwab asked its advisers what percentage of new clients came from wirehouses, he said. Meanwhile, advisers are reasonably sanguine about the potential for the market over the rest of the year, according to the survey. The study found that 58% of registered investment advisers expected the Standard & Poor's 500 stock index to gain ground this year, compared with 46% who felt that way in January. Despite the upbeat prediction, the majority of advisers — 77% — said it would be difficult to achieve clients' goals during the following six months, and 49% said their clients had requested more- conservative investment options. The prediction was in line with news that the S&P 500 increased just 0.06% on an annualized basis over the 10-year period ended June 30. In addition, 22% of the advisers surveyed planned to invest more in small-cap stocks, up from 9% in January. Only 19% said they would invest less in small-cap stocks, down from 38% in January. The July poll was conducted by Koski Research of San Francisco. E-mail Bruce Kelly at [email protected].

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