Schwab's Bernie Clark addresses questions, concerns about TD integration

Charles Schwab’s annual Impact conference, held this week in Denver, marked the first time the company was able to address a significant gathering of TD Ameritrade financial advisers in person.

Schwab announced plans to acquire TDA in November 2019, just months before the Covid-19 pandemic forced the industry into working from home and cancelled events. The previous two Impact conferences were held virtually, so it’s no surprise that of the 2,500 advisers who attended this year, an estimated 1,200 were first-timers.

Many were independent registered investment advisers with serious questions and concerns about how the migration from TD Ameritrade’s brokerage platform to Schwab’s would impact their business and their clients. Keynotes with Schwab executives allowed audience members to submit questions via a mobile app that were answered on stage.

At Impact, InvestmentNews had the opportunity to meet with Bernie Clark, managing director of Schwab Advisor Services, to ask about what he has been hearing from advisers and how the firm plans to address concerns.

Note: This interview has been lightly edited for length and clarity.

InvestmentNews: This is the first in-person Impact to be attended by advisers previously affiliated with TD Ameritrade Institutional. How are you feeling about it? How is everything going?

Bernie Clark: Everything is going great here, but this isn’t the real world, right? The energy level is really high, but I will tell you things are going really good back in the day-to-day conversations we’re having, the new clients that I’m meeting and the smaller events we’ve been having.

We all know [the integration] is going to be work, but we all know what the dividends can be on the other side of it. So that’s the excitement you hear. 'Forward together' is much about the two companies coming together, but it’s also kind of been our theme with advisers in general. We work together closely, we know what their needs are, we have to provide them and that’s how we’re going to continue to grow this industry.

IN: So no drunken punch-ups between Schwab gangs and TD gangs?

BC: No punch-ups. Plenty of technical challenges, lots of depth of exploration we’re going into, and lots of modernization happening on our platforms because of the integration. So all of that is good. But the cultures — I’m not going to say it’s a surprise to me because I knew all of the TD folks anyway, or most of them — the cultures are quite similar. We both sit as really important businesses within companies that were retail companies, and we believe in the adviser model. It's quite a bit larger now together and so we have lots of opportunity.

IN: When you spoke about the integration yesterday, it seemed like you and [Charles Schwab Corp. CEO] Walt Bettinger were doing a bit of expectation management. How are you going to be working with firms to address any issues that do come up?

BC:  The first key was getting the date out there, and now we can begin a program with our firms and that program is going to be very detailed — what [RIAs] need to do, what we need to do, and we’re going to work through that. We’re going to train people. We’ve had a lot of surge hiring. We’ve been working through anything that looked like it would be a pre-issue with the firms.

As we stand to migrate millions of clients, there’s going to be some hiccups that are going to happen. It’s inevitable and the message we want to send is we’re not going to try to hide those. We’re going to be transparent, we’re going to know what they are, we’re going to remedy them quickly and we’re going to get on with it. Keep moving forward. Once we go, this is a go-forward strategy.

IN: What are some of the challenges that youre anticipating, or some that you’ve already been working through?

BC: Put it this way: Every firm has a tech stack of their own. What we have on the back end are two broker-dealers and we need to bring those two broker-dealers together and we need to transition all those clients from the closing broker-dealer, which is Ameritrade, to the Blue broker-dealer [Schwab]. There will be a weekend of activity where all positions, balances and everything will be moved over. Then there will be a verification period to make sure everything moved as it was supposed to move, that there was nothing left behind, nothing that needs to be cleaned up. We expect to see no problems in any of those things. Paperwork won’t be an issue because clients aren’t filling out any.

All of the capabilities will be there for advisers, but they’re going to use a different system.They’re going to hit different keys and we expect [a] training period. We have to make sure their middle offices are understanding: 'I used to do this when I was on the Green platform, I do this now on the Blue Platform.' They won't lose capability, they might just have to execute it differently.

IN: There continues to be a concern from smaller advisers about the service they will receive, and not just from TDA advisers. InvestmentNews spoke with an adviser at Impact who said he has an $80 million firm that has always been with Schwab and never wants to leave, but is concerned about the service moving forward. How do you balance serving firms that are very large RIAs on one end, down to very small firms, and some that focus on financial planning rather than collecting assets?

BC: So I’m not going to say it's wrong, but everybody looks at asset size as the differentiator. What I submit to you is the fact that that has something to do with it, because often size brings with it complexity. But the reality is, what kind of adviser are they and what are they trying to provide to their clients?

Really what we're trying to do is serve a multitude of advisers who are trying to serve their clients. And if you look at a smaller adviser who is dealing with a population of people who maybe aren’t as worried about things such as estate and future planning, future generations, transfer of wealth and those kinds of things, they need different help. The advisers that [offer] those kinds of things need a lot more of our legal or compliance help. So that’s different than somebody who might be very transactional with us and needs a lot of transaction and trading support. We’re trying to gear our models much more toward what the need of the adviser is and segmenting it in that kind of way.

I have to tell you, two companies coming together of this size, there's going to be different names. I’m not saying there's not going to be a relationship manager, it’s just, not everybody is going to be with the same relationship they were with. We’re going to have to break down some of those walls, and we’ve been doing that. We’ve been trying to migrate people to where their more permanent team will be.

IN: Personalization has been another big theme of Impact, Schwab has been investing in direct/custom indexing. Where is the company at on rolling that out to Schwab advisers?

BC: They can access personalized indexing and we will continue to grow it. The only thing it’s limited in is the depth of product. So we’ll keep making the product lineup deeper and deeper. There’s a lot of interest, which wasn’t always the case, in model portfolios and [rebalancing software] iRebal I think is going to play a big role. That’s going to be a big plus because we don’t have an iRebal equivalent on the Schwab platform.

IN: This is a question Schwab has been getting for years, but there’s always that tension between the retail business and the adviser business. Schwab is currently advertising personalized investing directly to retail investors, how do you balance that with bringing it to advisers?

BC: The flat answer is we compete with advisers at some level. Everybody competes in the marketplace. Today, combined, if you take our retail and our institutional business at Schwab, we have 11% of the market share. That’s an 89% opportunity that sits out there.

Advisers compete with advisers. Clients need help, they need a relationship and they need it on their terms. If we get in the way of an adviser relationship, we step back immediately. Our job is to be a custodian and we’re not trying to interrupt that, but you have to acknowledge that there’s a flow of business that leaves us every day or every year for other offers. So if we don’t provide them with what they need, then they’re going to find themselves another model that’s probably not an adviser, which we hate to see.

IN: On the technology side, TDA was beloved among the fintech startups as a place to grow and the tech-forward advisers. Where is that integration piece with third-party technologies and bringing that over to Schwab?

BC: We have 185 APIs currently that are going to go forward on client Day One. In the past, TD had about 170, and we had about 160, somewhere in that ballpark. We went and did a side-by-side comparison of them all to make sure that we left no capability behind. But in some cases, we found that the API that existed on Schwab was better or worse than the one that was on Green. We took the better of the two, just like we did with people, just like we did with the whole selection process. There will be some new buttons that get pushed.

The one thing I will concede that people absolutely loved was [TD’s] trading systems. So we’re taking those in kind and our plan is to just migrate everything from the Green’s thinkpipes trading system. It’s superior.

IN: What are you hearing from tech companies and them moving over and working with your system?

BC: We’re almost done with the tech companies and the integration. We’ve almost completed all that work.

The one thing that we have to consider is we do have $3.2 trillion in adviser assets that we custody, that we’re meant to keep safe, and we have a reputation and a brand that keeps it that way. People come and join Schwab now because they like the safety and security of Schwab. So our ability or desire to take a flyer on new technology in the future is not going to be great. We can’t put the franchise at risk to some of those models. We’re not a startup that’s going to do that. If we see something that makes sense, if advisers bring it to us, we’re going to vet it. Most of the time what happens with those kinds of things is you find deficiencies, usually in the security side of things, and you just tell the provider, ‘When you get this right, we’d love to consider you.’ Often the fintechs don’t necessarily have the wherewithal to do that and so then they go look for an easier door to open, with maybe a less significant provider. We’re going to make sure we protect the franchise we have.

IN: That makes sense for advisers as well. We’ve seen plenty of startups that look great, ran for a while but then closed up.

BC: I’ve been doing this for a long time, and I’ve had those cases where we’ve had to shut down technologies and it’s the hardest thing to go to the advisers and say, ‘You just can’t use this anymore.’ You don’t want to be in those places, especially when you look at the adviser community and the strength that they have. They want to be rock-solid going forward, no matter what size they are.

IN: Anything else you’re hearing from advisers that you’d like to share?

BC: We’re really not going to repaper clients. We’re really not going to charge a custody fee for advisers. These [rumors] just reoccur. I put a pledge out, that is what we’re living by and have been living by for the past years and will continue to live by. We’re going to be honest and open and transparent in what we’re doing. What we’re saying is the truth about how we’re moving forward, and anyone that wants to stir up anything else, they’re just trying to stir things up.