Schwab, TD Ameritrade See Opening to Grab Brokers, Clients
In back-to-back conference calls on Friday and Monday, the heads of Charles Schwab Corp and TD Ameritrade Holding Corp. said the Department of Labor’s impending fiduciary rule should stimulate new business for them from clients as well as producers at more traditional full-service firms.
As firms like Merrill Lynch and LPL Financial steer brokers from transactional, commission-based accounts to fee-based advisory accounts to accommodate the new rule, customers will get greater insight into fees on advisory accounts while brokers will be reminded how much higher their payouts can be as independent registered investment advisers, they said.
“Many firms are gravitating toward an investment adviser approach, maybe driven by the DOL, but in doing so, it’s going to create more transparency for their clients as to what they’re actually paying for advice,” Schwab Chief Executive Walter Bettinger, said in a quarterly call with analysts on Friday. “That plays right into our hand.”
In announcing , TD Ameritrade CEO Tim Hockey said Monday that he expects more brokers will realize they can keep more fees for themselves as independent registered investment advisers who use discount brokers as their custodians. Schwab and TD Ameritrade have major businesses providing practice management and trading services to advisers in return for getting access to RIAs’ clients.
The DOL rule’s spotlight on advisory accounts will “put a lot of pressure on the advice fee side,” Hockey said. “It’s a competitive industry and we’re focused on being very efficient going forward.”
Neither executive expects major market-shifting advances from the rule, but both said the transparency it generates should invigorate the long-term trend of brokers “breaking away” toward independence while highlighting lower customer costs.
From a “simple economics” viewpoint, brokers’ ability to earn 65% to 70% payouts on fee-based accounts in contrast to 45% to 50% at wirehouses “could be enticing,” Bettinger said.
He also alluded to the rapid growth of Schwab Intelligent Portfolios, the no-fee “robo-advisor” launched 19 months ago and that has accumulated $10 billion in assets under management as well as its new “exceptionally low-cost” Target Index Funds that are being sold on 401(k) platforms to younger investors who Schwab hopes to capture as long-term direct customers.
Just over six months out from the DOL rule’s April 1 implementation date, the major brokerage firms are beginning to unveil major policy changes affecting brokers. In addition to Merrill Lynch’s prohibition on commission-based retirement accounts as of April 10, 2017, LPL Financial told its more than 14,000 independent brokers last week that they will not be able to sell variable annuities that pay them 100% of their commissions upfront as a result of the rule.