A look at Schwab's TD migration, 8 months in

It’s been eight months since Charles Schwab pulled off the biggest data migration the financial advisory world has ever seen, moving $1.3 trillion among 3.6 million accounts at 7,000 registered investment advisors that had previously custodied at TD Ameritrade.

Such a massive undertaking inevitably would have hiccups – something the company acknowledges – but even those who are critical of Schwab’s relationship with RIAs credit it with accomplishing something on a scale that was never before attempted.

Some advisors who relied on TD Ameritrade’s user-friendly technology were unhappy, and others cited customer-service headaches or the threat of competition with Schwab for clients as reasons to change custodians. However, most have stayed put – the company has seen attribution of former TD client RIAs of 4 percent to 5 percent, which is roughly what it had projected.

Today, Schwab has more than 15,000 independent financial advisors, representing about $4 trillion in assets under management, according to figures from the company.

“Change is something that we all have to take in cycles, and we were all in the thick of it as we headed into the conversion,” said Jalina Kerr, Schwab’s head of advisor experience.

Since then, the company has focused on delivering on promises it made to the advisors who used TD Ameritrade, she said. That has included changes to its systems to “remove friction for advisors.”

Initially, there were complaints about the firm’s Docusign process, which could take two hours per client but now can be done in about 30 seconds, Kerr said. That has made the experience closer to what advisors had under TD’s platform, and feedback has been positive, she noted.

The company has also updated the Move Money feature in Schwab Advisor Center, making changes to election policies and others that are more in line with what people were used to under TD Ameritrade, she said. About 85 percent of RIAs use the newer Move Money feature, she said.

Another step the company has taken is to increase the integrations it has to connect software and data sources that let advisors automate their workflows, she said.

Additionally, the company’s electronic authorization capability, which helps ensure clients are authenticating for account activities made on their behalf, was not initially praised by the former TD advisors, though they have grown to understand it and appreciate it, she said.

“We’re watching the data to see what’s happening,” she said. “All the proof points are there.”

Since the account migration, the use of TD’s Veo One system has decreased by 90 percent, as advisors are more accustomed to Schwab’s system, she said.

She also credits the company’s systems handling 40 percent to 50 percent more 1099s during tax season.

“We had to deal with two 1099s, which everyone was aware of… But beyond that, the response from advisors and the stability of our platforms… lived up to the test,” she said.

Business opportunity

Despite many advisors reportedly being happy after the account migration, some have added custodians or changed them entirely.

Jason Wenk, CEO of Altruist, credits advisor discontent with Schwab as a big driver of new business. The company’s best month for new assets was September 2023, with advisors who custodied at TD trying to move before their accounts were at Schwab, he said. But since then, even more business has followed, he said.

“The migration didn’t go well for a lot of advisors. We started to hear in the fourth quarter from a lot of people that they didn’t want to do a third custodian in one year,” he said, of firms waiting to make yet another change. “We ended up having our best-ever quarter by far in Q1, and our largest source of funds was Schwab.”

Altruist grew by 300 percent in both 2022 and 2023, he said, with it currently having more than 3,000 firms as clients. Wenk said he expects that the company will surpass its 2023-level growth before the end of the second quarter, with aims of surpassing Fidelity as the second-biggest custodian. On Thursday, the firm announced its Series E funding round, at $169 million, with a $1.5 billion valuation.

The first user of Altruist’s custodial service, advisor DJ Windle, had most of his clients at TD Ameritrade until late 2022. He began transferring them to Altruist well ahead of the transition to Schwab, totaling $150 million in assets, though a few accounts remain at that firm for logistical reasons, he said.

“I met Jason when he started this whole process [of building Altruist]. He only had the domain at the time,” Windle said. He likes the company’s system for its simplicity, with account openings and trading being easier, he said. “Every other custodian just makes things more complicated.”

The feeling of competing with Schwab for ownership of client relationships is real, he said.

“Clients can open their own accounts and do fractional trading, which the advisor can’t,” he said. “There are a lot of little things like that when you in that platform. It’s clear they’re trying to control the whole thing.”

After the TD account transition, his firm lost access to the acquired company’s Docusign account, and using Schwab’s was more limited, as it only allowed Schwab documents to be included, he said. That was problematic for a firm that used multiple custodians and had its own contracts and forms, he said.

“We wanted to take over our account… and we couldn’t get it back.”

Another advisor, Jeremy Walter, owner of Fident Financial, has moved nearly all clients from TD Ameritrade and Schwab to Altruist and is still in the process of switching a handful of them.

He credits Schwab with pulling off “the largest financial maneuver in the advisor space, maybe ever,” but he says that as a smaller RIA he felt that the customer service was tailored for larger firms.

“It’s breathtakingly easy for getting anything done operationally on the Altruist platform,” he said. “The ease of maintaining that account is lightyears beyond what I have with Schwab accounts.”

He greatly appreciated TD Ameritrade’s iRebal system, which included some manual work, he said. With the rebalancer at Altruist, “you tell it what to do and it goes and does it,” he said. “From an efficiency standpoint that is so great.”

Discontent with Schwab has also benefited another custodian, Axos, according to that firm.

“Our sales pipeline has been exploding as a result,” said Mike Watson, head of RIA custody at Axos Advisor Services, putting the figure at tens of billions in assets among firms with cumulative assets in the hundreds of billions. That company has been onboarding 40 to 50 new firms, and increasingly, those that are looking for an alternative custodian have more assets under management, with $1 billion and up being more common, he said.

“There is no firm that is hiring more CFPs in the industry than Charles Schwab. The next closest firm is Edward Jones,” Watson said.

For RIAs who custody with that firm, “their partner is a frenemy who is directly competing with them,” he said.

Living in harmony

Schwab has no interest in competing with its RIA customers for their clients, and it has tried to make that message very clear, Kerr said.

“We would not put at risk TD Ameritrade advisor’s clients in pursuit of our retail acquisition efforts,” she said. “We are absolutely committed to the advisor space. It’s highly complementary to our own business, because advisors have a fiduciary responsibility to the end client to do right by them,” she said, adding that those who come in on the retail side are often referred to advisors.

In situations where conflicts arise, Schwab stands down, she said.

“We stand behind that. We’re not here to compete with the advisors, and we have tried really hard to make sure they see that.”

The company has been working to make life easier for RIAs, including through improvements to its trading and wealth management capabilities, she said. The firm has retained tech from TD Ameritrade such as iRebal and thinkpipes and has made efforts to upgrade them, she said. The company provides free streaming quotes for thinkpipes users, for example, she said.

“Even though we inherited this great technology as part of the acquisition, we’re not stopping there,” she said.

Some advisors are waiting for things to improve.

“They made a lot of promises, but we continually deal with headaches and manual workarounds that should not exist. We actually see much more client frustration over functionality and data that was lost,” said Ryan Naugle, owner of Advice & Planning Services, in an email. “I have partially given up on them. We are not moving in mass yet but have added another custodian and will no longer be opening accounts with them. If this continues to go well, we will likely move most of our AUM from Schwab's platform this year.”