Schwab Advisor Services’ technology leaders outlined several priorities on its development roadmap in a Tuesday conference call, but support for fractional share trading was not one of them.
Charles Schwab Corp.'s founder, chairman and namesake told the Wall Street Journal in October that the firm plans to introduce fractional share trading — which lets investors buy and sell pieces of an equity — to its retail online brokerage platform.
The move is considered a bid to attract younger clients and those with fewer investable assets. With fractional shares, investors with fewer financial means could diversify their portfolios with pieces of expensive stocks like Berkshire Hathaway or Amazon that they otherwise couldn’t afford.
Schwab hasn’t made an announcement about when fractional shares will be available to retail investors, but the company doesn’t have plans to make it available on its digital platform for financial advisers.
“It’s not a feature we are exploring directly for PortfolioConnect,” said Andrew Salesky, Schwab Advisor Services senior vice president of digital adviser solutions, on the conference call.
Financial advisers traditionally serve a clientele wealthy enough to afford full shares of even the most expensive stocks, but fractional trading is growing in popularity in the industry. Just as Schwab sees it as a feature to attract younger investors, some advisers see fractional shares as a way to offer sophisticated investing strategies to next-generation clients.
Even large advisers recognize value in fractional shares to make automated, model-based invested more precise and customizable. It also helps advisers offer direct indexing, a strategy of recreating an index fund by buying all, or most, of the underlying stocks.
The capability is even more valuable to advisers in the new post-trading commission world, said Tim Welsh, president of Nexus Strategy. Though many advisers prefer buy-and-hold strategies, free trading eliminates a major barrier to advisers trading more frequently.
Some custody and clearing firms support the ability for firms to transact in fractional shares, including BNY Mellon Pershing, Apex Clearing and Folio Institutional.
On the conference call, Mr. Salesky said Schwab Advisor Services is looking at direct indexing for advisers and other opportunities presented by zero commissions.
But the priority for his time is around expanding PortfolioConnect’s digital account opening capabilities to support multiple account openings for households and, eventually, entire firms.
“Digital onboarding … is our largest investment across our whole portfolio,” Mr. Salesky said. Continuing to digitize forms and giving clients more status updates are also top priorities.
The team is also looking to improve the adoption of its digital platform among advisers. Jalina Kerr, Schwab Advisor Services senior vice president of client experience, said Schwab is looking to use data on how advisers use its technology to better predict how to serve them.
Support among small RIAs
Support for fractional shares could help calm nerves of smaller RIAs who custody assets with TD Ameritrade Institutional in the wake of Schwab’s announced plans to buy TD Ameritrade Holding Corp. for $26 billion.
Schwab Advisor Services maintains that a significant portion of its adviser clients have less than $100 million in assets on its platform, but some small RIAs worry they will be left behind as Schwab prioritizes larger advisers and its retail business.
“If they do support smaller advisers, they should make this a priority,” said Mr. Welsh, who worked as a consultant for Schwab’s adviser business from 1999 to 2005. “Advisers don’t believe what they read or what they hear. They believe what they see.”
Mr. Welsh said this another example of the firm putting retail first, advisers second.
“They just don’t think in terms of broad, company-wide development to include advisers. This is a retail platform that has an adviser platform on top of it,” Mr. Welsh said. “It’s been that way for 20 years.”
Schwab did not immediately respond to requests for additional comment at the time of this writing.
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