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Starting 2012 with a bang, Schwab will place its private client business under a new RIA

The Bay Area firm says it's making the move to avoid compliance clashes with ERISA; others say Schwab's riding the coattails of the RIA movement

Author Brooke Southall December 1, 2011 at 7:56 PM
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Schwab is moving Schwab Private Client completely out of its branches to a remote RIA.

Tim Welsh


Chip Roame

Elmer Rich III

Elmer Rich III

December 1, 2011 — 9:31 PM

Are we missing something or doesn’t this just: – Raise the spectre of a direct-to-consumer, strong branded direct competitor to every Schwab served RIA — across the country? – Create competition inside of Schwab for the “best and brightest”, techology and other resources between the branded RIA and all of Schwabs RIA supporting services and products?

It sorta seems like Coke and Pepsie opening up competitors to McDonalds, Burger King, etc in every city in America.

Now with all the roll-over money comping it would make sense that Schwab would want to optimize it’s brand going direct to investors. Not sure how it’s core advisor business would benefit.

Didn’t Schwab just run a big ad campaign touting local RIAs? Of course, Schwab could have put the resources into bolstering it’s RIA client business instead.

We’re a bit confused. Who can help explain?

Stephen Winks

Stephen Winks

December 1, 2011 — 11:48 PM

Two points:

1. Liability Management vs Channel Conflict: Having a seperate RIA for advisors makes sense for Schwab and the major wirehouses as well as it limits liability. Though, without descretion fiduciary liability is not presently an issue at Schwab, competitive market forces will require Schwab to develop direct descretionary advisory services that would entail accountability for Schwab advisor recommendations entailing ongoing fiduciary responsibilities necessary to have a credible advisory services market presence. This either means Schwab brokers will have to become advisors or Schwab will have to sell its direct advice business to resolve chanel conflict with its massive custody and clearing business. This might be a necessary step for Schwab to liquidate their conflicting direct advice business.
2. It is significant to note in the last half of the article dealing with the SEC/FINRA laubdry list

Stephen Winks

Stephen Winks

December 1, 2011 — 11:53 PM


SEC/FINRA laundry list, that the onerous nature of compliance can become less evasive and costly through expert prudent process and technology authenticated by statutory documentation which by definition is in compliance with an expert standard which can be continuously compliant.

Elmer Rich III

Elmer Rich III

December 2, 2011 — 12:05 AM

Who sets and keeps current the “expert standard?” Our understanding is that fiduciary defines “prudent man/peer” not “expert.”

Stephen Winks

Stephen Winks

December 2, 2011 — 2:14 AM

By professional imperative, prudent expert status is an ERISA consideration for the professional standing of advisors who serve plan sponsors who have a fiduciary responsibility. By extention a “no lessers standard than that of advisers” is required for brokers under Dodd-Frank. Thus, for example, if a broker uses Black-Litterman in portfolio construction as is prevalent throughout the brokerage industry, which is inferior to Michaud resampling efficiency, the depth and breadth of advisory services expertise comes into play. There is a rofessional obligation to act in the client’s best interest.

In a highly competitive marketplace, the level of discernment and differentiation based on best practices will accrue to the benefit of the industry’s best practitioners who can defend proven, patented, peer reviewed expert best practices in at least 30 areas by my count. This will materially change how the brokerage industry approaches advisory services.

Under this scenario, the industry has to get much more serious about advisory services as it is elevated to the status of a profession required for fiduciary standing.


Brooke Southall

Brooke Southall

December 2, 2011 — 5:46 AM


In response to your first question, I say: good question. I tried to answer it with my reporting but it proved fairly unanswerable. Both advisors and competitors I called chose not to comment. It’s very much a wait-and-see situation and nobody wanted to stick their neck out. Right now I think it’s literally a bureaucratic shift. But the plant has been yanked by its roots and put in richer soil. It may blossom in new ways, if it’s allowed to.


Elmer Rich III

Elmer Rich III

December 2, 2011 — 3:28 PM

lol The plant analogy is a good one — to extend it. The question is whether this fast growing “flower” will block the “sun” for other advisors in the “forest” and sap nutrients from the same soil.

Frederick Van Den Abbeel

Frederick Van Den Abbeel

December 3, 2011 — 1:51 AM

Mr. Rich made a good point in his initial comment. It appears to me more of the “same old same old” in terms of conflicts of interest.

Further, as the article mentioned, “Schwab Private Client is available to clients who have at least $500,000 and it charges an annual asset-based fee starting at .75% for equities and .50% for fixed income investments.”

Will be interesting how RIAs which custody via Schwab feel about these advisory rates as opposed to their own particularly those that might be in close geographic proximity to these Private Client Branch Offices?

Seems Schwab is putting downward pricing pressure on Advisory fees in comparison to the advisory rates surveyed recently.

Sandy Kelly

Sandy Kelly

November 15, 2013 — 6:46 AM

Update: As more RIA are sued as “thieves” without evidence of theft and as RIA defendendants prove former clients searched and found them, and found to be INNOCENT of contacting their former Schwab clients, Schwab faces justifiable counter suits for malicious fraudulent lawsuits seeking the return of legal fees in defending themselves along with penalties for time incurred in defense of false accusations, mental anguish, defamation, etc. It only seems fair for a class action counter is warranted for the intimidation and malice on the part of Schwab for their _* lost *_lawsuits brought against defecting RIA personnel.

Stephen Winks

Stephen Winks

November 16, 2013 — 10:57 PM

Everyone should be sympathetic to Sandy Kelly’s concern of litigation tactics which favor those with the most litigation resources rather than adjudicating what is right or wrong.


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Mentioned in this article:

Tiburon Strategic Advisors
Consulting Firm
Top Executive: Charles Roame

Nexus Strategy
Consulting Firm
Top Executive: Timothy D. Welsh

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