One area of weakness for RIAs is finding the resources, time and expertise to train people, and Schwab is addressing the need

November 15, 2012 — 5:34 AM UTC by Brooke Southall


Schwab Advisor Services announced today that it is creating a program that will function as a de facto RIA MBA degree largely concerned with removing one of the very real and bottlenecks preventing orderly succession in the advisory business: The lack of heirs to the RIA thrones who know how to manage their way out of a paper bag.

The big San Francisco-based RIA custodian, currently in the throes of its annual IMPACT conference in Chicago, labeled the initiative — slated for launch in 2014 — its top-line item among a list of new initiatives. The program is aimed exclusively at grooming the next generation of RIA leaders veering away from previous custodial efforts that took more top-down and matchmaking approaches.

“Many people think of succession in terms of 'entity’ but we also think about succession in terms of people,” said Bernie Clark, the Schwab executive vice president who oversees RIA custody, in a release.

The right successor

Such a program could help solve the industry’s succession problem, which mounts as advisors reach retirement age but remain trapped in their practices and are unwilling to mount a fire sale. Advisors have been known to declare a mea culpa for creating the situation, according to David DeVoe, chief executive of DeVoe & Co., an RIA M&A firm in San Francisco.

“Many advisors who lament the shallowness of the management bench of the next generation also acknowledge that they aren’t providing enough opportunity for their staff to grow. Advisors who sign their people up for Schwab’s MBA program and actively provide them with more responsibility will achieve much greater success than those who just send them to the program.”

Dan Inveen, principal of FA Insight says that anything Schwab does to foster internal successions is beneficial, given that about 72% of advisors surveyed in 2011 by his company said they’re going for internal succession because it’s less disruptive for clients, more satisfying for employees and gives the principal has more control over the legacy of the firm.

“The big issues, as Schwab realizes, is having the right successor in place — even if the RIA principal doesn’t realize the same return as they would on the open market,” he says. See: Have an aversion to succession plans? Consider a continuity pact as a vital baby step.

Conflict of interest

Another data point Inveen uses to support this case is that the salaries of senior-level executives are rising just 3% annually, versus 17% for mid-level associates — an imbalance that reflects the demand for successors. In response to this expense scenario, more advisors are seeking a build-versus-buy solution to their succession problem and would rather invest in grooming young associates.

Advizent co-founder Steve Lockshin says he believes it’s important to train junior advisors, but he worries that Schwab may have an inherent conflict of interest. See: Lockshin: All advisors must deal with the threat of low industry standards — before investors do it for them.

“The challenge is not to pollute the program with an agenda or a bias or a conflict,” he says. “If Harvard had an MBA program for advisors, it’s a lot different than Schwab.”

The MBA-like program is a great idea, says Ryan Shanks, principal of FineToothConsulting. He believes Schwab can dodge conflicts of interest.

“It’ll be difficult to have a proprietary push [behind the education] because it’s an independent open-platform. I don’t think there’s going to be anything like the Merrill Lynch Kool-Aid [of Merrill self-promotion] in those programs.”

'Continue to morph’

Lockshin says he believes succession planning is crucial and is one of the biggest challenges the industry faces, but feels that Schwab would be better served financing these efforts and having an independent organization run the program.

He points out groups such as the Young Presidents Organization and industrywide study groups are good ways for training advisors because they allow advisors to learn firsthand from one another.

“The problem is when it’s run by a conflicted company, the opportunity for success is much different than when it’s run by a non-conflicted company,” Lockshin adds. “What if they bring nine positive things and one negative thing. Does the one negative thing severely dilute the program?

! Lockshin: The challenge is not to pollute the program with an agenda or a bias or a conflict.!

Clark says that the leadership program won’t be a Schwab program per se, in the sense that he plans to incorporate programs from various associations and universities. He says Schwab may in fact become a force for the creation of study groups so advisors can learn from each other. “It’s highly unlikely you’ll see a five-year program,” he says. “We’ll continue to morph.”

IAs in training

The other training initiative that Schwab’s announced this week is an internship program in an effort to bring younger advisors into the industry. See: Schwab launches 'university’ for advisory personnel.

The idea will be for young people with aspirations in the RIA business to work at various Schwab operations centers across the country. There will be just a handful to start, but the hope is to expand it to dozens of these fast-trackers as the years pass.

“I don’t see any reason it couldn’t be a 10-, 20- or 30-intern program,” Clark says.

He adds that the idea is to create a pool of trained labor that advisors could draw on as they staff up operationally. But Clark also envisions that some of the interns will stick around Schwab.

“If we’re over[peopled], we’ll keep the people working with us. And some people would rather stay in a corporate environment.”


Schwab will work closely with schools such as Texas Tech University and the University of California, Irvine to train advisors of the future. The intern program will start in 2013 and is designed to identify and develop new talent. Schwab will provide interns with experience on critical systems and education about the industry, profession and end-investor needs. See: Schwab University is fast off the mark and its course selection is set to grow.

Under the plan, participating interns would be hired by RIA firms on the Schwab platform — which could have a useful aspect to Schwab for not only growing RIAs but by creating allies within the RIAs, Lockshin points out. The Schwab-trained people will want to stay with systems they know.

Industry leaders at the conference said they feel an intern program is an excellent way to bring new talent into the industry.

“The intern program is great … it serves two purposes, which both are good if they can take RIAs out of the operational side of business while giving them quality talent,” Lockshin says.

Still, he says, there may be a bonus corporate outcome to the internship program.

“Schwab gets an ally [in the person of the intern in the sense of] 'I know Schwab so I’m going to use Schwab.’”

Mentioned in this article:

FA Insight
Consulting Firm

DeVoe & Company
Mergers and Acquisition Firm
Top Executive: David DeVoe

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