Investment Advisers Fear Losing Out in Schwab-TD Ameritrade Deal

Old_Joe

Following are selected and edited excerpts from a current WSJ article:

Takeover plan vexes those who park their clients’ money with big online brokerages

Wall Street has roared its approval for Charles Schwab Corp.’s plan to buy TD Ameritrade Holding Corp. AMTD 7.58% , but the proposed deal isn’t sitting well with one key group: the financial advisers who park their clients’ money with the big online brokerages.

Registered investment advisers (RIA) rely on brokerages to execute trades, hold clients’ assets and perform related services such as record-keeping, a business known as custody.

The $26 billion merger would create a behemoth in that world. A combined Schwab-TD Ameritrade would have nearly $2.1 trillion of advisers’ assets in custody, or around 51% of the market, according to estimates by Cerulli Associates. The No. 2 player in the space, Fidelity Investments, has about $932 billion in RIA assets, or less than a quarter of the market, Cerulli estimates.

That scale has also sparked worries about deteriorating service and less choice for advisers.

“The adviser community is not particularly upbeat about this news,” said Michael Kitces, a partner and the director of wealth management at Pinnacle Advisory Group, which manages about $2 billion for its clients. “There’s not a lot of upside that’s visible to them.”

Schwab is currently the biggest RIA custodian, with around $1.5 trillion in assets and more than 7,500 financial advisers. Schwab helped the financial-adviser industry gain momentum in the 1990s by creating the Schwab Advisor Services platform, which made it easier for advisers to set up shop independently and compete with stockbrokers at big brokerage firms such as Merrill Lynch.

Advisers worry that the main effect they will feel from a Schwab-TD Ameritrade deal is worse customer service, along with technology hiccups as the two firms integrate.

For an adviser, switching from one custodian to another typically involves getting the signoff of every client affected, as well as a significant amount of paperwork. If an adviser is unhappy with the service a custodian is providing, that process makes it difficult to decamp for a rival custodian.