Bernie Clark discloses that Schwab Advisor Services hit $1 trillion of assets -- and why the order for commemorative T-shirts is still on hold

For the first time, Schwab Advisor Services hit $1 trillion in RIA custodian assets — but the celebration of the monumental milestone is still on hold.

The achievement of that long-sought milestone came, like a Christmas gift, at the end of December. RIA assets totaled $1.008 trillion, including third-party administrator funds and trust assets, according to Bernie Clark, head of the San Francisco-based custodian. He mentioned the amount when speaking Wednesday at Schwab’s winter business update. See: 10 questions for RIAs to ask Neesha Hathi, Bernie Clark and Walt Bettinger at Schwab IMPACT 2013 in DC.

Much of that growth was propelled by the hot stock market in 2013, so in double-edged fashion, the 2014 market dive cut in the other direction.

“We had hit $1 trillion, but January robbed us,” Clark told analysts during the meeting in San Francisco that was also broadcast on the web. “We can’t make the T-shirts yet. We’re going to wait to celebrate.”

Long time coming

Leaders at the RIA custodian have been chomping at the bit to reach the $1 trillion watermark for at least seven years. Deborah McWhinney, former head of Schwab Advisor Services, was cited many times in 2007 predicting the custodian would celebrate its goal of $1 trillion RIA custodian assets in 2010. But when the market downturn hit, the goal got pushed down the road. See: McWhinney gains aid of Myra Rothfeld.

Even though Schwab didn’t hold onto the $1 trillion crown for long, Clark still boasted about the firm’s 25% market share compared to competitors.

The RIA unit had $1.3 billion in revenues in 2013, a growth of 12% from 2012. “2013 was a banner year for our advisors,” Clark said.

Still on top

In response to question in which an analyst mentioned LPL’s advance in the RIA custody business, Clark explained that his companies economies of scale will continue to be an advantage that builds on itself.

“It’s really a hard platform to build to create the infrastructures and relationships. It’s easier to build on the IBD side than the fee side. We’re the market leader and Fidelity is half our size and TD is half their size and Pershing is half their size … It [takes] a long ladder … to play materially in this space.” See: Part II: RIA custodians’ answer to challenges to their monolithic control: We still have big-time scale advantages.

Schwab’s RIAs now have 25% commission business, he says.

Small fry matter

As head of the largest custodian, Clark was defensive in response to inquiring analysts about the notion that his firm is only interested in big advisors. He wants to keep his firm on top and says to do so, his firm needs to woo all advisors. Right now, the total number of RIAs at Schwab is more than 7,000. See: Schwab Advisor Services is nearing $800 billion of RIA assets but analysts are split over whether it can continue to dominate.

“It’s complex but we’re trying to win all segments. We’re not simply on the high end. We’re interested in making sure we own all levels of advisory assets.”

Even though TD Ameritrade and LPL Financial are often considered to be the biggest contenders for advisors that have $50 million in assets or less, Clark says his firm still considers that an important area and wants to grab smaller firms too.

“We’re not known in that space. LPL and TD are known for that space and they fight each other, but we think there’s an opportunity there to continue to win market share,” Clark said.

Merry matchmaker

But rather than just keeping those smaller advisors independent, Clark wants to play matchmaker, marrying these smaller RIAs together to form larger RIAs. See: A $1.2-billion RIA is born on the Rt. 128 altar as two $600-million-AUM firms — one in hyper-growth mode by Fidelity referrals — get hitched.

“We think there’s more strength to have firms combine together and grow up rather than building out their own firms. Any firm under $100 million is state registered and that can become complex and costly,” he said.

Larger breakaway teams

The breakaway movement was solid in 2013, Clark says. The company grabbed 160 new breakaway teams and the average defecting team had $112 million in assets.

“The average size of teams is starting to creep up,” he said. In 2013, the firm gained $60 billion in net new assets from RIAs, he added.

The wirehouses still haven’t launched a foolproof strategy to keep their advisors, Clark said.

“By and large, it’s complicated. It’s hard to change the economics of the captive. But I’ve said it before: It’s a bit altruistic but the individual coming to the RIA side is not coming first for economics. They’re an entrepreneur and they don’t like being treated like the least-common denominator.”

Though Clark did not elaborate on this, most big advisors gripe that compliance practices at wirehouses fit the sloppiest, least-experienced brokers under their brand. See: 7 reasons why wirehouses shouldn’t milk the old business model.

“Teams are starting to think more frequently about joining existing independent firms,” Clark said. “They can go fully independent and not have to start up their own services.”

Big growth

Even though 2013 was a big year, Clark has his sights set on grabbing at least $250 billion in new assets that Boston-based Cerulli Associates has predicted will trickle into the RIA arena in the next four years. The firm has said the RIA channel should get about $1 trillion in assets transferred from baby boomers in the next four years. See: The trusteed IRA: One tested method to maintain assets under management through the generations.

“I can talk all day about our statistics, but you can see what Cerulli is predicting,” Clark said. “We’ll continue to ride this trend of growth in the marketplace. Advisors at Schwab are growing more quickly than elsewhere in the industry. RIAs are growing faster than the rest of the traditional industry. If you’re an advisor at Schwab, you’re growing faster than your peers in the RIA industry.”