Karl Thunemann: Schwab has an opportunity to put its values into action by radically changing its separation policies.

Why I moved my account from Schwab's RIA and what Chuck could do to improve Schwab Private Client

After the double defection of the assigned branch and portfolio manager, a loyal but disillusioned customer sends an emphatic message to the front office

February 1, 2013 — 6:36 AM UTC by Guest Columnist Karl Thunemann

29 Comments

Brooke’s note: Schwab Private Client is a big, successful RIA. See: Starting 2012 with a bang, Schwab will place its private client business under a new RIA. It has gotten that way presumably by using its brand and by providing a good service. But any big firm — even one that operates as an RIA like Schwab — has to deal with the challenges that have made financial advice one of the few businesses that is often more successfully administered as a mom and pop rather than as a big company. This column, artfully written by a former newspaper editor, is the tale of a perfect little storm that demonstrates both the strengths and vulnerabilities of the personnel aspect of Schwab’s RIA — with a few thoughts about Windhaven, a marquee financial product of Schwab’s, included for good measure.

Brooke’s added note: I told Schwab a bit about Karl’s concerns and have included its response at the end of the piece.

When I decided to stop managing my own portfolio of mutual funds and stocks, I was very excited to hook up with Charles Schwab. Our new broker was thoughtful, insightful and plainspoken. My wife—who had never taken an active interest in our investments—liked him as much as I did. And he could talk to both of us—me with my decided ideas about investing and her with her intelligent questions that would lead her to a balanced index fund—without pandering to either of us. See: Joe Duran tries out novel financial planning strategy on himself and his wife.

Things only got better when we were introduced to our portfolio manager via a conference call. He was based in another city, and was as bright and considerate as our broker. In the era following the Bernie Madoff scandal, it was comforting to find an institution that based its management of our accounts in two cities. Best of all, both these paragons were younger than our children and said they had no intention of moving to other fields. It felt as if we were fixed for life. See: Next-gen advisor breaks the standard RIA mold to grow with her young clientele — many with $100,000 or less of assets.

Dual defections

For nearly two years, things hummed along beautifully. I would drop by the broker’s office for a quarterly conference call. I was persuaded to reduce my unreasonably large investment in Berkshire Hathaway. We frequently communicated by phone and e-mail.

And then trouble visited our little paradise. The portfolio manager called with a heads-up that our broker had left Schwab. It was amicable, but he was not allowed to contact us and we would not be told where he had gone, although he was still in the business. Within a few weeks came another blow: Our prized portfolio manager had also left Schwab. The branch manager called and offered his help in arranging for a new broker. He was very helpful and generous in listening to my concerns. At one point I told him I would be happy to have him as my new broker, but he had his hands full. I soon learned that I could track my broker’s whereabouts at finra.org, but months went by without his name showing up in those files. See: Ben Brigeman is exiting Schwab and his position atop its retail business — perhaps portending bigger changes.

Separation anxiety

Gradually, I began to realize I had a few problems with Schwab. I’ve tried to boil them down into three points:

1. Given the company’s slogan, “Talk to Chuck,” Schwab should revisit how it treats clients after their personal “Chuck” has moved to another company. See: What Chuck Schwab’s talk showed about his complex relationship with RIAs.

In the weeks following the double departure, I began feeling more like a commodity than a valued client. Everyone tried to be considerate, but the overwhelming effect of this double amputation—they’re gone and we can give you no information—led me to question whether I should stay. I was assigned to a new broker. In retrospect, I wish I had insisted on being given the names of three or four brokers to interview. I had chosen to come to this company.

Now I had no choice, except to complain if I found a bad fit. Even supposing I found worthy successors, what would happen when they left? I know that absolute and instantaneous severing may be the industry norm, and that my appeal for reform may seem laughably naïve. But think back to the day when sales commissions fueled the financial service industry, and the idea of charging flat fees based on the size of portfolios must have seemed radically unrealistic. Schwab has an opportunity to put its values into action by radically changing its separation policies.

Information gap

2. When Schwab is selling a proprietary investment vehicle, such as the Windhaven ETF portfolios, it should provide its clients with independent analysis of that vehicle.

For some months before my advisors left, I had been talking about putting a portion of my money in one of the Windhaven portfolios. These are tactical funds of ETFs that choose from among 40 investment vehicles as they try to anticipate the direction of the economy. I wasn’t shown any outside analysis, but my portfolio manager discussed it in comparison with another strategy using a notably successful bond fund manager. I went with Windhaven, and was thinking about doubling my stake, but I found a frustrating lack of information in the wake of the great departure. See: Windhaven misses its 12-month benchmarks again but still hits asset-gathering mark.

My new advisors seemed to know little about Windhaven. When a Windhaven executive visited my branch office, I asked where I could find independent analysis of the portfolio and its competitors. “We really don’t have any competitors,” he said. See: Windhaven’s success draws attention to emerging ETF managers. In a sector of the market that is seething with competition, this response seemed untenable. There’s an information gap. I think Schwab should contract with an independent analyst to provide a quarterly report on Windhaven, covering its performance, its management (is there a succession plan?) and, yes, its competitors. Make it a five-year contract, ensuring the analyst’s impartiality.

Soon after I was reunited with my broker, he sent me a Morningstar report on tactical funds (dated Feb. 13, 2012), which asserted that as a group these funds have had difficulty meeting their objectives. I suspect that Schwab may very well respond that Windhaven isn’t one of these. Fine—then how about an independent evaluation of what it is?

Buried disclosure

3. When Schwab alters the role of brokers and portfolio managers, it should tell clients up front, instead of leaving them to figure it out on their own.

This may sound fuzzy, but it might be the most important of my concerns. Once I was assigned to my new broker and portfolio manager, they seemed less open-minded and forthright than their predecessors. I felt they were trying to rein me in, and that they seemed to be operating in a world far more circumscribed than the one I had been accustomed to.

Much later, when I raised this issue with my original broker, he confirmed that there had been a change. He had been forbidden to provide portfolio advice to his private clients. I chose him for his insight and capacity to think. Why should the company withdraw that from me, and without notice? When I showed a draft of this piece to my broker, he told me that Schwab sent notification in the fall of 2011, and required that the broker, or “financial consultant” or the portfolio consultant verify that clients receive notification.

He said that buried deep in the document was the disclosure that portfolio consultants would provide all investment advice, leaving financial consultants to manage other aspects of the relationship. I had been notified. So what’s my complaint? See: Ex-RIA chief: 'How I learned more in a month as a client than in 20 years as CEO’.

I vaguely remember receiving that disclosure statement, and failing in my effort to read it. I resolved to ask my guys at our next quarterly meeting if there was anything significant in it. I forgot, and I forgive myself. Who in this world can keep up with all the blithering, fine print “disclosure” statements our financial institutions send us? If there’s a major change, as this was, please send us a short, specific letter.

Ironically, the approach used by my broker’s new organization might seem more circumscribed than Schwab’s. Its line of attack is strategic, not tactical, and utilizes low-cost index-like strategies in the majority of its portfolios. But you learn this up front; you don’t have to deduce it. I recently sold the last of my Berkshire—not under pressure but because it looks as if the company will operate much differently in the post-Buffett era. I still have my Costco holding. I have a smaller position in Ford, based on my admiration for Alan Mulally. Perhaps I’ll sell when he retires later this year. But if Trader Joe’s ever goes public, watch out! I’ll be first in the buyers’ line.

Still a fan

In most respects, Schwab is an excellent company. Its website is easy to read, and full of useful information. After the double departure, Schwab waived my management fee for two quarters. And, when I started to initiate a rollover to follow my first broker, the portfolio manager advised me to wait a few days—otherwise I would be charged the full service fee that had been waived. They were still looking out for me. Schwab has punctiliously responded to surveys I filled out about the company.

I contacted RIABiz because it was one of the few sites on the Web that had any reporting on Windhaven. I e-mailed Brooke Southall to ask if he would consider developing an article addressing my concerns. He replied by suggesting that I, having been a journalist — even a business editor — in a time long, long ago, write about it myself.

I agreed. Then I dithered. Why did I suppose this would have any effect? Then, as the RIABiz line began to buzz with stories about Schwab gearing up to be becoming the leading player in catering to registered investment advisors, I realized this is a good time to put these ideas forth.

This is their best chance to be heard at Schwab’s front office. Just imagine what a boon it would be to Schwab if it could spare its next generation of clients from such disillusions as I have described here.

Karl Thunemann and his wife live in Redmond, Wash. Now retired, he spent 26 years as a journalist, working for weekly and daily newspapers in suburban Seattle, including six years as business editor. He looks forward to a list of suggestions for Schwab from a professional — one of those “Ten Top Suggestions” posts that make RIABiz.com so readable.

As promised, a response from Alison Wertheim, vice president of public relations at Charles Schwab & Co. Inc.: “We try to communicate openly and quickly, and while we can’t satisfy every request, we listen intently and do our best to address issues raised by our clients. This was certainly the case with Mr. Thunemann. We certainly try to match personalities and styles when making client assignments, and but unfortunately, we aren’t always successful.”



Share your thoughts and opinions with the author or other readers.

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Lew said:

December 4, 2015 — 2:18 AM UTC

I had some of the same issues. I had been with Schwab for about 25 yrs and was with Private Client. I was pleased at first but as they continued to change policies without my knowledge and after three portfolio managers from Ind, I became concerned. I have a Trust and Schwab had me put US trust as a trustee. That was OK but they sold the company to a bank and never told me. So here I am with a Trustee that would immediately take my investments out of Private Client should something happen to me. I found out about the issues when I called the Trust Company because of changes that I was making to the document.
Next my last portfolio manage scheduled my quarterly review and was not on the call. He had someone set in but never even called me. When he was on the call , I felt that I was more prepared than him.
Last straw before I left. Schwab formed a Administrative trust company in their Bank. Their trust services are costly and then the final straw. If I use the bank as a Administrative Trustee to file taxes and write a few checks a year, then I had to take my assets out of Private Client to a independent company to manage my assets.
I wrote the CEO to complain that Schwab Advertisements were less that accurate and they just told me to do what ever but they were not changing.
I moved all of my assets out and no one ever called to ask why after 25 yrs. So do you want to depend on Schwab as a life partner. The answer is NO

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Rich said:

November 25, 2015 — 9:31 PM UTC

I am so upset about how I was treated at Schwab I had to write a review. I have to agree with most of these accounts, particularly the former employees.

I had my accounts at a different large scale broker, who had a terrible platform for trading and had no concept of using options for income, so I looked around for another broker/advisor. I interviewed small and large shops. At Schwab, I was invited to attend a Private Client (PC) meeting where they had people from all over the country that attended to answer questions about how PC worked. They had portfolio advisors in Florida, option experts in Colorado, and other so called “experts” that would help to ensure the best performance for my portfolio.

After enrollment, I spent three months and many conversations with the Porfolio Advisor, so he could get to “know” me. I told him I like individual stocks, and I wanted to incorporate options as a main tool in the portfolio. We spoke about many undervalued stocks and the potential to sell calls and puts, and he told me that the options group would be involved in generating those positions. Great! Unfortunatley that is not how it executed.

I received the first report and it specifically stated “You prefer not to invest in indiviudual stocks when appropriate.” I felt like I had talked with a completely different organization. The advisors treated me with contempt when I told them how I wanted the profolio managed. I didn’t want to be in China, so he put me in a mutual fund out of China. He put me in all mutual funds and did not listen to one concept that we discussed. This went on for 6 months, as the financial consultant, who only organizes meetings, essentially begged me to stay and try again. I finally got fed up with the Portfolio Consultant’s approach to treat people like idiots. This was egregious!! I have never met a more deceitful group of people and will be looking to move the entire account out of Schwab

STAY AWAY FROM SCHWAB PRIVATE CLIENT. THEY HAVE NO INTEREST IN HELPING YOU.

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jim b said:

September 16, 2015 — 3:21 AM UTC

Windhaven is a major joke since purchased by CS. They are losing money and they hide the true cost. Besides the nearly .9% there is another ,3% charged by the ETFs so a client is paying 1.2% for basically an unmanaged fund.
it is unmanaged since the same etfs are own as when CS took over. Its a crime to rob people but when I tried to talk with “Chuck” there was silence, Still is.

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Former Private Client, Schwab for over 40 years said:

June 14, 2015 — 6:39 AM UTC

After 40 years with Schwab, we were so excited to become Private Clients. We met at the Bellevue, WA location every quarter or so to discuss our investments. After a few years, just after our quarterly meeting, we came home feeling confident about our investments. When a bond was all over the news for having major issues, we were pleased because we just met with our advisors and knew we couldn’t have been in this investment since 1. it wasn’t mentioned to us, and 2. we were only to have “secure” bonds in our 40% allotment. After another week of bad publicity for this bond, we called Schwab to verify we didn’t own it. They said something like “oops, you do have it and we called everyone else to discuss it but forgot to call you.” (I believe our advisor was on his honeymoon and extended vacation and the “fill in” advisor made a mistake. They then advised us to sell it, which we did. We lost a lot of money and when we asked for an investigation they acted as if they were going to conduct an honest review. The Bellevue manager stated they would never advise to buy or sell (in other words, we were lying).They listened to the tapes and confirmed that both 1 & 2 above had happened. We were not liars after all! We were then asked to “give them another chance” at which point we asked them to split the loss, thinking this was fair. They then called us back a few days later and said 1. We no longer want to work with you and 2. Read your contract as we only have to meet with you to fulfill our contractual obligations. After this treatment, we were happy to leave Private Client and I have recommended to many friends to stay clear of this organization and service. Obviously, our 40 years of loyalty meant nothing to them! Beware, read the complicated contracts carefully as they only protect Schwab and have no concern for you – the Private Client. Shame on you Charles Schwab!

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Richard Rosso said:

January 18, 2015 — 11:47 PM UTC

Thank you for all your comments. Fight the good fight.

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T. diNovi said:

January 4, 2015 — 11:48 PM UTC

Mr. Thunemann has nailed it, and provided investors a thoughtful analysis and warning about Schwab Private Client. The reality of this Schwab platform is far from those glossy gray brochures.
The off-site hubs are trading centers, that should be obvious fairly immediately. And the reps you speak with by phone tend to be financial industry newbies. Always ask for their surnames (they will uniformly be taken aback by this basic business protocol) and absolutely check them out on FINRA. A pattern emerges and you may be in for a surprise. Always ask the assigned Portfolio Consultant (often in another state) for a printed bio/CV and cross-reference that with LinkedIn and other verification sources. If there is no LinkedIn bio with post-secondary education (institution/s and dates), ask why not?
FINRA urges investors to get to know and get comfortable with their investment professionals. But that is hard to do when they are in another state and always pressed for time on the phone. Forget finding out something sketchy about them on FINRA or elsewhere.
Glaring lack of disclosure and peculiar information gaps, and a kind of baiting and switching that undercuts the client’s working relationship with the well-qualified local FC for the less qualified off-site Portfolio Manager/Consultant (aka “trading specialist”) quickly begins to feel like fraud under a clannish, simplistic façade at Schwab.
In sum: Big, obvious problems with Schwab’s Private Client model and platform. Caution advised.

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Former Schwab Private Client FC said:

May 30, 2014 — 6:53 PM UTC

Mr. Thunemann, thank you so much for your honest comments. Just like Richard Rosso, who made some great comments earlier, I am a former employee of Schwab and was one of the original 'SPC consultants’. I helped launch the program and was on the ground floor of this new, exciting world of 'advice’ that had eluded us as employees for so long. (I worked for Schwab for 20 years, the last 10 in the SPC capacity).

I made the decision to leave after the announcements were made that they were essentially removing me from all the responsibility of giving advice to the very clients that I enrolled in the program for the last 10 years. The exact wording of the RVP was, “We are removing the burden of advice”... from us as branch financial consultants so that we could concentrate on selling more. Selling to Schwab is trying to attract more assets, generate more revenue, sell mortgages and checking accounts, and get more people into advisory programs so that they can be advised from afar (service centers).

As someone who had a book of business over $250 million, and an average client household of $1.3 million, I found it utterly ridiculous that they would not allow me to give recommendations, much less discuss my client’s portfolio with them. It all had to be deferred to the portfolio consultant that you are partnered with in the service center. For example, if a client called me and needed to free up some money – I couldn’t determine what to sell. I had to conference in or have the client call the service center. Bear in mind, I’m a 20 year licensed broker who essentially built all of these portfolios. Degrading. Not just to me, but how would you feel if you had a few million bucks with your advisor, and they couldn’t discuss your portfolio with you? Or recommend something? That is what’s happening at Schwab Private Client.

Not just this decision to basically eliminate my responsibilities, but removing my title, a few pay-cuts over a 2-3 year period (they lowered our basis points payout on our advised practice assets that we had grown, and said we could make that up on the sales side). They also lowered our payout a year earlier from 8 to 7% on practice assets. Doesn’t sound like much, but that’s 12.5%. This company is all about revenue and doesn’t care how they screw employees to get there.

It didn’t used to be like this. I would say for the first 15 years or so of my career at Schwab, I loved it. Felt like you were 'different’... a great, growing business that was ethical, and the company really seemed like they cared about you. That all changed around 2007 or so. When I left the firm, I would estimate that there were around 70 of my peers (who started as SPC branch reps with me when it launched) left at the firm. This was out of 200. They all left for a lot of the reasons I stated above. I still have clients seeking me out after being tired of the turnover. I had one that said, “I had 2 other people assigned to me since you left. I was just assigned my 3rd. That’s it. I should have come over with you when you left”

For SPC clients, let me just give you a little understanding of what’s going on. You have probably seen this anyway – they are going more and more away from individual stock and bond investments and more to mutual funds. Why? 2 reasons: more profit for Schwab (fund companies pay Schwab a % of the assets they hold there), and the more logical reason – the portfolio consultants at Schwab manage probably 300 or so relationships. You think they have time to watch or advise on individual equities? Nope. So you are stacking mutual fund fees on top of SPC fees. These PC’s work hard, and spend most of their day doing quarterly review after review… there really is no time to be proactive. The quarterly reviews are what’s required to tweak things here and there, but no action in-between. That’s why taking advice away from the branch consultants really was mind boggling.

Anyway, my 2 cents.. and wanted to shed a little more light on things. Hope it helps!

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Former Schwabbie said:

December 6, 2013 — 9:52 PM UTC

SCW: Feel free to forward my post to Chuck and the rest of the Board. I would love to have a conversation with them on this subject and would send it myself but every time I reach out to former colleagues that still work at Schwab, I am met swiftly with a nastygram from Schwab counsel with a reminder about my separation agreement.

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Stephen Winks said:

December 6, 2013 — 9:36 PM UTC

Ex-Schwabbie,

I agree with the shared sentiment that your commentary was beautifully articulated. Brilliant. Let’s hope Schwab is listening, as you propose an excellent industry dynamic for he benefit of all—especially Schwab.

SCW

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Brooke Southall said:

December 6, 2013 — 8:24 PM UTC

Ex-Schwabbie,

I second Richard Rosso’s thinking.

You clearly took great care with your thoughts and we are flattered that you chose to post them here.

Brooke

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Richard Rosso said:

December 6, 2013 — 8:17 PM UTC

FS, your commentary touched me. Well written.

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Former Schwabbie said:

December 6, 2013 — 7:48 PM UTC

Stephen Winks:

I agree with you, and my statement about W2 employees only referred to Schwab employees. Clearly other firms have a different perspective, offering a platform for an advisor to start as a W2 employee, grow into and transition to an RIA model. Schwab unequivocally takes the position that ownership of the client relationship resides with Schwab. It is expressed in their compensation model while you are an employee and comes to full light and forbearance after you leave. For all the years that Schwab invested in creating a OneSchwab culture, there is still a persistent divide between their retail and institutional businesses. They have an opportunity to leverage their strengths on both sides to really create a business model that would set the bar in our industry, incorporating not only the legal intents of fiduciary care but maximizing the firms client-driven culture to embrace the ethics and values of fiduciary stewardship, for clients and employees.

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Stephen Winks said:

December 6, 2013 — 7:29 PM UTC

It is not true that every W-2 employee of a brokerage firm works in an environment where the firm owns the broker’s clients. Wells Fargo (formerly Wachovia and Wheat, First in its earliest iteration) believes that the broker owns their clients. The question is whether the broker owns their value proposition—which unfortunately they do not as it is the choice of the broker dealer to acknowledge and support the fiduciary standing of the broker. Thus, the question of “sealing clients” hinges on who owns the client and who can act in the client’s best interest…thus the rationale for the breakaway broker and the rowing ranks of RIAs who act in the consumer’ best interest, not the broker/dealers.

SCW

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Former Schwabbie said:

December 6, 2013 — 6:57 PM UTC

Everyone working in a client facing role at Schwab knows exactly what their rights and responsibilities are as a W-2 employee. Schwab has a very deliberate process around confirming annual updates to their employment, compensation and separation models. The point of this story is about the client experience when an employee has outgrown their role working for Schwab and decides to work for an independent RIA or even start their own firm. After spending many years being encouraged to build deep relationships with clients, Schwab has an unforgiving separation process that leaves the client hanging out on a limb and creates an unnecessarily acrimonious relationship with their former employees. Employee moral and attrition are real business challenges for Schwab. In their effort to move away from transactional based revenue and grow their recurring fee based cash flow, Schwab struggles to balance the needs of their stakeholders: individual clients, employees and RIA clients.

This is a story that does not get a lot of attention, although I did note the mention after Impact 2013 of the protestors outside the conventional hall. The wirehouse world and a growing number of RIA firms have seen the tremendous cost, both in time and money, that it takes to fight with departing advisors to protect AUM. The Broker Protocol was developed specifically to ease not only the legal costs of advisor transitions but also creates a straightforward process for clients to get clear information about the departure and allows them to make a clear choice to move with the advisor or stay with the firm. Schwab (and all the other RIA custodians like Fidelity as far as I know) refuses to participate in the Broker Protocol. Even though they clearly task their employees with the same duties and position themselves as a client’s trusted advisor, the exact responsibilities as an advisor at a wirehouse or independent RIA firm. Schwab’s approach is to prohibit any communication with the client about your departure, either before you leave or after your separation. Clients are left unassigned for weeks or months until Schwab figures out how to re-assign their accounts and the clients themselves have very little if any input on who their replacement consultant will be.

With all of the money that Schwab pours into recruiting and developing the RIA side of their business, they could prevent most of their financial consultant defections by creating a career path that naturally ends with an opportunity to run their own Schwab franchise or independent RIA. (The other way would be a simpler compensation model that acknowledges the employee contribution in the client relationship, but that is a different topic for another day.) The millions of dollars that Schwab spends on legal fees could be invested into a transition program to support their RIA business and retains all of the AUM. They recently developed a program to create a pathway for support staff and operations specialists to use Schwab as the training ground and then move to RIA firms. Schwab could create a similar program for client facing employees who require more advanced career options.

RIA firms that are struggling to hire talent and create an employee driven succession plan would be interested in partnering with Schwab to provide a pathway for the well trained and client-centric Schwab Financial Consultant that has a true entrepreneurial spirit to move to an RIA that uses Schwab as their custodian. The FC has an expanded career path, Schwab positions themselves as a true business succession partner for RIA firms and clients have a seamless transition if they choose to move with the consultant. In either case, the assets stay on the Schwab platform. Not every Schwab consultant would be interested and qualifications could be set very high but attainable to limit mass defections including tenure, credentials, size of the consultants advised practice, etc. Schwab refuses to see this as a legitimate opportunity, specifically excluding Financial Consultants from entering their own Franchise model, discouraging their RIA firms from hiring Schwab employees (see lawsuit in California that Schwab lost) and prohibiting former FCs who start their own firm from choosing Schwab as their custodian. Without a clear career development opportunity, I and many of my tenured colleagues decided to pursue those opportunities elsewhere.

If you run an RIA firm and think that Schwab is not competing with you for new clients, you are stuck seeing Schwab pre-1997 as America’s Discount Broker. That is easy to do as the TV advertising campaign on CNBC and other business channels focusses on those discount brokerage clients that favor trading on their own. Even though they still offer discount brokerage services, over the last 16 years Schwab has built an incredibly effective platform for their Financial Consultants to be the primary advisor for their clients who are looking for planning. Dozens of consultants at Schwab are getting their CFP and CFA designations every test session. Schwab hired an in-house estate planning team of licensed attorneys to consult with clients on advanced estate issues. Branch financial consultants are encouraged and measured by how many financial planning consultations they are providing clients every month. And Schwab has been the fastest growing firm in the SMA business over the last decade, and that growth is not all on the institutional side. Financial Consultants who effectively scale their practice know how to leverage delegated investment management and have mastered the ability to create sophisticated investment programs, including their own internal managed account solutions for mutual fund and ETF portfolios, Windhaven and ThomasPartners, each a direct competitive solution to RIA firms of all sizes. If you think this is a side business for Schwab, pull the ADVs or the Schwab Annual Report and you will see hundreds of billions of dollars invested in these internal investment solutions.

Schwab’s new advertising is geared directly at the ideal RIA client – the successful business owner or professional with $500k – $5M in investable assets. Unlike RIA firms who only accept delegated investment management clients, Schwab wants all of their business, maybe one or two accounts they trade themselves on the StreetSMart Edge platform, smaller accounts invested in Schwab index funds or ETFs, and the rest enrolled in Schwab’s RIA. Schwab Private Client is positioned and advertised as a custom investment planning service with a dedicated Financial Consultant and Portfolio Consulting team, promising to creating the financial roadmap, using Schwab’s open architecture, that can be built entirely with delegated investment solutions. You better believe Schwab wants the same client you are targeting and uses the same language that you use when talking to your prospective clients.

For the purposes of the primary audience that reads RIA BIZ, this article provides important insight for anyone interested in working with or for Schwab. Another new Schwab advertising campaign touts brokers who left other firms to work as a Schwab Financial Consultant. That ad is directed not only at clients who like the theme that even advisors are moving to Schwab, but also to the breakaway advisor who is looking for a new home. Unless they really dig deep into the archives of sites like RIA BIZ, they will not know how difficult it is to leave and how Schwab uses their bully position in the industry to not only intimidate you but also prospective employers who might be interested in hiring you based on your skills, not the amount of AUM that will follow you.

In the RIA industry, I continue to hear consultants advise that the custodial partnership is the most important strategic decision for principals of advisory firms. Custodians are providing more back office and business management services in the hunt for net new assets to their platform. I would argue that if seen 'Through Clients’ Eyes’, it is one of the least important issues, ranking well behind the credibility of the individual advisor and the expertise of the advisory firm. Savvy RIAs and Independent Broker/Dealers are leveraging technology to create a multi-custodial relationship that results in a much better experience for the client, who does not have to move accounts to engage their services. As firms choose which custodians they want to partner with to build their business, they must ask themselves if they want to get entwined with a firm who is competing for the same customer.

Again, this article highlights from a client perspective the pain and confusion that Schwab has intentionally created in their approach to employee transitions. We would not have to try to define what constitutes 'stealing’ of clients if Schwab took the business challenge of losing their best and brightest advisors and turned it into a client experience opportunity that would benefit all of their stakeholders, and shareholders alike. There is a better way.

For the record, I still hold Schwab in high regard and value the years I spent working with individual clients. Expressing my opinions here is not meant to be derogatory towards Schwab in any way, even though it is highlighting an area that Schwab can and should be better. And it is possible and likely that my own difficulties and frustrations in dealing with Schwab after my voluntary departure influence the tone and objectivity. My agenda is simply to point out the hypocrisy of a firm who publicly touts transparency and building a business around client needs but who takes the exact opposite approach when it comes to employee departures. This could be an area where Schwab uses their size and scale to create an incredibly positive example for our entire industry, and that is the kind of thinking and management that we all expect from Schwab. Unfortunately Chuck’s role today does not involve the daily inner workings of the firm bearing his name. The process of leaving Schwab is a disappointing experience for all of us who were hired and trained under the premise that we represented Chuck himself when we talked to clients. We lived the Talk to Chuck mantra every day and I was honored to have the opportunity to serve as the local placeholder for a true pioneer in the financial services industry.

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Jason M Brooks CFP® AIF® said:

December 6, 2013 — 6:29 PM UTC

Mr. Thunemann,

As a former Portfolio Consultant with Schwab Private Client I must thank you for sharing your experience.

Over my 13 years with the firm, 10 of which as a Portfolio Consultant with Private Client, I can personally attest to the quality of employees working to provide you with the best investment advice permissible under the tight constraints of their compliance and investment advisory council. That being said, there are no steeples on Wall Street, and every big firm must contend with the conflict of interests associated with promoting their products, ratings or relationship programs and maintaining the impression of a conflict free offer.

The best solution is to seek out an Independent Registered Investment Advisor firm, where the Fiduciary Standard serves as the keystone to every client relationship and individual investors can forge a lifelong partnership built upon trust and centered around their best interest.

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Brooke Southall said:

November 14, 2013 — 11:13 PM UTC

Jack,

This is very interesting, and on this page, against the grain testimony and I’m hoping you get responses that match yours in sincerity.

This is particularly provocative:

There is no other name for it. If you don’t know what the term “W-2 employee” means then go talk to a lawyer. A Schwab e’ee taking customer data is no different than a Lockheed/Martin engineer doing it. It is stealing and should be prosecuted to the fullest extent of the law.

How do you define stealing? If an advisor leaves and clients follow, is that stealing?

thanks for speaking up,

Brooke

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jack reutemann, jr. said:

November 14, 2013 — 11:04 PM UTC

I’ve been in the investment biz 40 years, but i am new to Schwab, just 16 months. I also just came back from IMPACT 2013, and found it to been the most professional and best run conference I have ever attended, as did the 3 associates that were with me. I have carefully read the comments over the last 2 days, and would like to share a few of my own. First, all businesses have the right to develop their own business model as they see fit. Would a Cadillac customer be offended to find out that his Cadillac dealer added a Subaru to his dealership line-up?? If there is anyone out there that believes Schwab’s in-house captive RIA is a threat to them, then i seriously believe that they should go back to learning how to manage money. Performance and relationship management will win out over size 100% of the time. Lastly, stealing is stealing. There is no other name for it. If you don’t know what the term “W-2 employee” means then go talk to a lawyer. A Schwab e’ee taking customer data is no different than a Lockheed/Martin engineer doing it. It is stealing and should be prosecuted to the fullest extent of the law. Over the last 50 years as a society and a culture we have turned a blind eye to basic common sense values. Whether it’s stealing, drugs, alcohol abuse or politicians doing all of the above, i believe there was a lot less of it 50 years ago.

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Sandy & Kelly said:

July 8, 2013 — 8:52 PM UTC

In our Schwab Account, Sandy & Kelly wrote this message:

“Forward this to Chuck, please…

We were disappointed in the loss of our long time Schwab consultant, Rich Rosso. We were ecstatic to be able to find him and made contact with him through the LinkedIn web site.

We felt uncomfortable with our latest projection from Brian Hicks. It estimated our net investment in 25 years to age 93 to be worth more than our current balance based upon our current cost of living figures (had they been adjusted for any inflation?) considering the Schwab standard ROI projections vs. anticipated needed withdrawals.

For Schwab to have lost Rich Rosso was upsetting and we feel betrayed and distrustful of the road Schwab has taken with its representatives. You have lost our confidence and we have closed our account as well as any further recommendation to others to remain or enroll with Schwab.

Hopefully you will find another model for handling your clients to not further alienate them and deprive them of their trusted representative.

Sign us disappointed, disillusioned and unhappy with Schwab accusing us of being contacted by Rich.

Bye!”

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Stephen Winks said:

July 8, 2013 — 7:54 PM UTC

Lisa,

WOW !

A terribly compelling testimonial.

I am glad to know you and applaud your principled actions on behalf of your clients which affirms the trust and confidence they have vested in you.

The consumer is not even a consideration in industry product and service development these days. The abuses are extensive and largely unchecked (Target Date Funds, etc. etc.) Without advisors like you, the consumer never knows their trust in our largest industry institutions has been misplaced for many many years now You are the difference between a broker and an advisor as you are both accountable for your recommendations and have ongoing responsibility, uncommon in a brokerage format.

SCW

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Lew Myers said:

July 8, 2013 — 5:20 PM UTC

I have been with Schwab for 28 yrs and was forced to leave because of their lack of communication, change in products, and unwillingness to listen to their clients.
First Communications, Schwab Private Client was quick to get me to allow US trust to be a trustee in our wills. They did not even give me a call when they sold US Trust to Bank of America which means that if something happened to me that my funds would be transferred to Bank of America.
Next, Schwab formed a trust group with their bank but they only supply the administrative duties of writing six checks a year and want .4% of my assets for doing that. That is more than other companies want to perform the duties of managing the account plus admin duties. Additionally they tell you that your money cannot stay in Private Client if they maintain the trust. Totally out of line with all other companies. You must pay .4% for six checks a year and then and additional management cost for a third party manager after your death that you have no experience with. I complained to the Presidents office but got a call back from a support group saying that we have no intention of making any changes but we want you to stay with us. Chuck, you do not listen?????
I found it difficult to leave but explained that I could buy products from Raymond James cheaper
like SMA’s. Also Vanguard will provide me a similar platform for my trades at $2 per trade vs. $9 per trade at Schwab. So why stay with a company that does not communicate, listen, and is more expensive.

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DavidL said:

May 24, 2013 — 1:52 AM UTC

The dark underside is that Schwab has a legal team that will pursue their PC staff thru the court system with their deep pockets and terrorize their staff and RIA’s on the platform not to leave/hire them unless they want huge legal bills….

http://www.investmentnews.com/article/20110113/FREE/110119967

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Maria Marsala said:

February 5, 2013 — 12:41 PM UTC

Thank you Mr. Thunemann. Your story brings up many issues. One issue I talk to financial advisors a lot about. ... it’s about identifying their ideal clients, not by just AUM … but about their attributes, values and communication preferences.

You had an FA whose attributes you valued and were given a different type of FA who, IMO, didn’t take the time to really connect with you – for whatever reasons that didn’t happen.

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Sammy said:

February 3, 2013 — 2:18 AM UTC

This is a weak hand Schwab is dealing. As a large shareholder, I have great concerns after seeing more poor press.

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RitaT said:

February 2, 2013 — 6:24 PM UTC

Not sure where schwab public relations gets this “match up” comment. My accounts were moved to a person I didn’t really gel with and to another branch without my permission.

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Frederick Van Den Abbeel / TradePMR said:

February 1, 2013 — 10:54 PM UTC

I hope Mr. Thunemann is able to find a partner/investment advisor for which he receives the time and dedication he deserves. This is both a sad and unfortunate story. Perhaps Schwab is having some difficulty properly allocating their resources between brokerage, their own RIA division and custody? Also is an example of earlier myths proclaimed that the Schwab Retail side is strictly for the do-it-yourself investor. If that were the case, why are they operating an RIA and not just strictly pure brokerage?

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Sandy Kelly said:

February 1, 2013 — 10:01 PM UTC

As a Schwab Private Client, we felt cared about in a personal way with financial advice geared to our unique circumstances. With a HISTORY of a decade’s results in good and poor markets and economies, a TRUST was built on questions, answers and results with our team of a financial advisor and a portfolio manager. Our relationship felt more as a mutual FRIENDSHIP as we experienced them as a PROFESSIONAL team, caring and considerate, with our best interests as their bottom line. It was upsetting to lose our partners in propagating our prosperity as if a family member had perished. Who was now going to CARE for our retirement? Something just did not feel right as the circumstances left too many questions unanswered while waived fees seemed to be fair compensation, it still felt as a coverup for why they were gone! We searched for them on Linkedin and now along with this article have more information to make our decision of whether or not to to stay with Schwab. Chuck, I hope you get to read this and recognize the loss of good will.

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Stephen Winks said:

February 1, 2013 — 9:20 PM UTC

Mr. Thunemann’s feedback as a highly informed consumer is invaluable to Schwab and the industry.

Now consumer’s are aware of the constaints in which brokers must work (violation of internal compliance protocol to render advice or even suggest so) and how the capacity of the broker to serve in the best interet of the investing public is crippled.

This affirms the RIA business model and more importantly establishes the consumer understands the differences in the broker selling an advice product without accountability or responsibility for their recommendations and an advisor who is accountable and responsible in managing an expert authenticated prudent investment process in the best interest of the consumer.

Mr. Thunemann is Exhibit A argueing advice product sales that do not support the broker’s fiduciary duties to their clients but are in the best interest of the broker/dealer is untenable. The industry must find a way to support expert advisory services in the best interest of the investing public.in support . The professional and fiduciary standing of the broker is essential to trust..

If properly resourced, the RIA alternative brokerage sales makes expert fiduciary counsel safe, scalable, easy to execute and manage at a fare lower cost than a package product. The consumer is just beginning to learn where expert counsel can be found, it will win every time. Even former Schwab private client brokerss see this as does the consumer.

Mr. Thunemann is testiment that the cultural barriers that preclude the broker from professional standing and assures the broker can not render advice, is the beginning of the imperative that the self interest of the industry must be reconciled with the best interest of the investing public based on objective non-negotiable fiduciary criteria.

There is no substitute for the induastry providing the expert support for the broker’s fiduciary standing, presently not possible in a brokerage format. This would perfectly align with Mr. Thunemann’s needs and expectations. The consumer has every reason to expect their best interest are being served. This absence of the necessary resources to support the advisor’s fiduciary dutiesare required by statute and is not the fault of the broker. The SEC has established the inability of the broker’s supporting firm to protect the trust and confidence of the inveting public.is solely the responsibility of the broker/dealer or custodian that the broker relies upon for support.

Thus Mr. Thunemann has raised a question as a consumer not easily raised within the broker/dealer world. When will brokers be able to render advice so there are both accountable and responsible for their recommendations. Until then, exactly how reliable is brokerage advice.

SCW

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Richard Rosso, MS, CFP, CIMA said:

February 1, 2013 — 8:41 PM UTC

This article is extremely accurate and unbiased. After 14 years with a company I loved, I felt the changes were too much and the client experience was going to suffer dramatically so I departed. There are wonderful employees at Schwab who cannot fulfill Chuck’s original promise; their goals are too paralyzing, they’re overworked, change is dramatic along with incredible lack of empathy for the client experience. The toll on the branch employee is overwhelming. There appears to be a conflict as what would be the criteria to move away or rebalance a manager within a portfolio allocation – There are no clear guidelines. The role of financial consultant had been reduced to hospitality, not guidance. We preached relationship building but with time constraints one could only touch lightly on them. Clients and financial consultants do not have any say as to portfolio consultant “fit” for each client when a tenured portfolio consultant departs. The process is inflexible, abrasive, to the client experience and creates undue strain on the ability to retain and nurture the relationship. It’s almost as if corporate is in battle with branch representatives who can provide valuable insight and feedback on how best to enhance the process. Schwab is still a strong firm with good ethics, wonderful smart employees with best intentions. Somewhere along the way, upper management lost sight of the vision. The front-line employees have stayed true to the cause. They need Chuck to set it all straight again so each employee can sit with a client and ask him or herself – “What would Chuck do?” and then feel comfortable doing it.

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ExSchwabPrivateClient said:

February 1, 2013 — 7:42 PM UTC

As one of those Private Client Portfolio Managers who chose to leave after seeing the last few years of change in the offer, I thank you SO much for giving voice to your experience. These problems have been escalating for several years, thus the reason for the double-departure. Unfortunately, our production expectations were continually raised making it more and more difficult to give our clients the personal service that they deserved and that we were committed to giving. Unfortunately, if you want a personalized, relationship-based financial advisor, you’re just not going to get it from Schwab Private Client. The good news is, as we professionals leave, we are joining smaller RIA firms that allow us to give the high level of service that we became so proud of and that you enjoyed. So when your SPC rep leaves – FIND THEM!!! You’ll be glad you did.


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