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Schwab's financial plan production skyrockets in 2013 as part of 'Chuck's' upmarket push

TD and Fidelity hold their fire on playing the planner role as Schwab clients get a full-on planner-executed fee for $2,000 and others are satisfied with more limited plans executed by 1,000 branch advisors for free

Thursday, January 23, 2014 – 7:26 PM by Brooke Southall
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Greg Gable on behalf of Charles Schwab: Clients who participate in a planning process are more engaged.

Brooke’s added note: Since publishing this article yesterday, people have e-mailed me to ask how Schwab’s output plans works from a regulatory standpoint given the Merrill Lynch Rule overturn in 2007. (In theory, brokers can’t charge for planning and advice.) I am not exactly sure. But plans are done in a brokerage world all the time and Schwab Private Client, which seems to do the most comprehensive plans, is an RIA in any case. If anybody could cast further light here on just how the ML Rule finessing works across Wall Street and beyond, it would be appreciated.

Brooke’s Note: Chuck Schwab’s latest message — from the NFL playoffs to the inside cover of the New Yorker magazine — is his firm’s “accountability.” Of course it is hard to hold an advisor accountable unless there is an agreed-upon plan that an advisor is bound to stick by. Any RIA knows that. Well, Schwab, it seems, is indeed beginning to put more and more plans of growing specificity into effect on behalf of clients. This big experiment will be interesting to follow. Thus far, it’s not a strategy that its main big-brand competitors are excited about emulating at the branch level. Whether that’s good or bad is very much open to debate.

Charles Schwab & Co.'s financial planning business took a big jump in 2013 — some of them of the $2,000-a-pop variety.

The retail side of San Francisco-based broker, with $2.25 trillion of client assets, delivered financial plans to approximately 101,000 clients last year — up 84% from 2012 — according to the company. About 27,000 were sent out in the quarter ended Dec. 31.

Schwab had 9.1 million active brokerage accounts and 916,000 banking accounts as of Dec. 31.

Schwab is likely to continue to produce more financial plans in coming years as it seeks to win and retain more big investors with complex financial challenges, according to Greg Gable, spokesman for the company. See: Schwab drops pretense: $2-million clients its staple branch diet in bid for fresh $2 trillion.

The numbers will particularly jump with the growth in clientele.

“Investors are increasingly looking for help, and that need is reflected in the increase we’ve seen in the number of plans delivered to clients,” he says. “I can’t provide a projection of how many plans we will deliver this year, but we expect that it will continue to be a focus for us and our clients, and as our client base rises, and the demand rises, we’d expect that number to naturally climb.”

Banging 'em out Saturday afternoon

The jump in plans is part of a concerted effort — also expressed more emphatically since July at the C-Suite level by Walter Bettinger, chief executive of The Charles Schwab Corp., to take the firm upmarket. Another tangible sign of this move include its move to open its branch offices on Saturday. The branch that I use in Corte Madera, Calif., for example, is now open 9 a.m. to 1 p.m. on Saturdays. I went past it last Saturday at 3 p.m. and I could still see a staffer hard at work at her desk. See: How Schwab’s new 'owning it’ advertisements position the firm to offer more advice — and how RIAs factored into the brand rethink.

On a more general level, Schwab is advertising on an “ownership” theme, a double entendre intended to appeal to small business owners that have succeeded and socked away assets and a kind of investor whose mindset is to own the process of investing by involving themselves in the process.

The most recent twist in the ownership theme is the “accountability” rap. See: How Schwab is calling out wirehouses with its 'accountability’ blitz and what collateral effects could hit RIAs.

On the house?

Schwab lists a fee of $2,000 for a financial plan on its website but most financial planning is given away gratis. Schwab still refers hundreds or thousands of thorny planning cases to RIAs.

“The complimentary plans aren’t provided by a separate group of dedicated planners,” Gable writes in a response to an e-mailed question asking to define what exactly Schwab means by financial plans.

“They’re provided by [1,000] financial consultants and typically focused on a specific goal, such as college saving for example. As in any planning process anywhere they are built on analytic models. The specific client data is applied to create a tailored recommendation, based on the analytic model. In the case of the more holistic plans — covering the complete range of financial planning issues — both for-fee and in the context of Schwab Private Client, those are done by a central team of planners. We do many more of the former [complimentary plans] than the latter, but we expect both to continue to expand with demand.”

TD’s DYI’ers

TD Ameritrade, based in Jersey City, NJ, also has a huge branch presence in the United States but it still puts RIAs at the forefront of its efforts to deliver formal financial plans.

TD Ameritrade does not provide comprehensive financial planning or ongoing investment advice to retail investor clients,” Joe Giannone, its spokesman writes. “Rather, we serve this marketplace through the more than 4,500 RIAs who custody their assets with us. We look to independent investment advisors to review investment goals and construct financial plans with clients as part of their overall relationship. Independent advisors serve as an extension of our business.” See: Fidelity and TD Ameritrade show new teeth in RIA advertising — albeit with giraffes, and children on summer porches.

He adds that investors without RIAs still receive guidance. “TD Ameritrade offers a number of third-party tools to help the do-it-yourself investor build and manage their portfolios. TD Ameritrade branches also have long provided free consultations with licensed investment consultants….Individual investor clients can be assured they are being referred to the channel that best firsts their needs, not ours.”

Fidelity’s retirement income plans

Boston-based Fidelity Investments is also erring on the side of making RIAs the prime producers of financial plans — except in the context of the firm’s famed retirement business. Even these plans are rudimentary in scope.

“We’ve conducted tens of thousands of retirement income plans using our Retirement Income Planner tool to help answer the two questions investors ask us most often: “How much I need to save now?” And, “How much will I need in retirement?” says Deborah Pont, a spokeswoman in the personal investing unit. See: Fidelity loses some RIA assets over its new DFA/Vanguard fees but other RIAs crunch the numbers and soldier on.

$155 billion advised

For Schwab, the uptick in plans come amid its execution of a macro-strategy of realizing revenues from fees rather than commissions — as expressed in its earnings release last week.

“Of the record $2.25 trillion in assets entrusted to us by clients as of Dec. 31, 2013, approximately half are receiving some form of ongoing advisory service, with $946 billion under the guidance of an independent advisor and $155 billion in client assets enrolled in one of our retail advisory solutions, increases of 20% and 22%, respectively,” the release states.

Client assets managed by Windhaven Investment Management totaled $18.5 billion, up 36% from the fourth quarter of 2012, the release added. See: Windhaven misses its 12-month benchmarks again but still hits asset-gathering mark.

Client assets managed by ThomasPartners totaled $4.5 billion. Schwab declined to calculate the jump from 2013. The dividend-focused asset manager had $2.3 billion of assets when it was purchased in 2012. See: Schwab drops pretense: $2-million clients its staple branch diet in bid for fresh $2 trillion.

Appropriate expectations

Schwab clearly sees and has articulated a vision for how planning fits into its growth plans — namely by emboldening clients to invest deliberately.

“The more thoughtful and strategic you are as an investor, the better your likely confidence and outcomes,” Gable writes. “That’s a great thing. Investors who go through a planning process, whether basic or more complex, have a better sense of their goals, how they will get there, what level of risk is appropriate, what the appropriate expectations should be for return and volatility.”

Gable continues: “Those investors are less likely to make snap changes based purely on emotion or take other steps that could derail their long-term progress. As for Schwab, clients who participate in a planning process are more engaged, and engaged clients tend to be more confident and satisfied. They also bring up concerns more quickly and honestly, allowing us to address them. All that is the heart of a good relationship and helps drive business results.”

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Mentioned in this article:

TD Ameritrade
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