The Schwab-TD Ameritrade merger creates one big identity crisis; Is it still a self-proclaimed 'challenger,' per Walt, or 'unbelievable fortress,' per Chuck?
CEO Walt Bettinger calls his company a 'challenger' six times in quick succession; but Chairman Chuck Schwab insists his firm now has no equal
Brooke's Note: Schwab and TD Ameritrade are both companies that thrived with big chips on their shoulder as freestanding entities. Much of that focused on size and low-frills. Now, the companies need to convince clients they get the best of size but without the baggage of a giant corporation that needs to live by common denominators. Immediately, CEO Walt Bettinger wrote a minor diatribe on LinkedIn about how Schwab is and always will be a "challenger" -- even if it just nabbed the heavyweight belt. His boss and chairman, Chuck Schwab, was more direct; his company is a colossal force, he said. He didn't try to say that the company will act like an upstart -- just that it will act with its known good integrity. It's a dichotomy atop a paradox bespoken by these overlapping yet different narratives. Threading the needle of this paradox will determine whether the huge retail brokerage network's owners end up happy with their deal -- and whether RIAs and investors share their joy.
The Charles Schwab Corp. began as the maverick -- waving its fist at bigger rivals in New York, Boston and Malvern, Pa. They were big, powerful, profitable, but slow-footed incumbents.
TD Ameritrade Holding also played the underdog -- to Schwab. It marketed (not naming names) against Schwab as a big, not-so-swift player itself, in discount brokerage and RIA custody. See: Despite dissenting Fed vote, Charles Schwab Corp. cleared to close TD merger Tuesday, and 'Schwabitrade' looks less fearsome than anticipated
Now as a combined $6 trillion brokerage, 'Schwabitrade' is promising investors a divine paradox --a Bigfoot with the soul of a feisty upstart.
"Being a challenger defines who Schwab is as a company," wrote Schwab CEO Walter Bettinger "That’s who Schwab was when it was a tiny startup with Chuck in the '70s, and who Schwab will still be after completing this acquisition."
Tim Welsh challenges the Schwab executive's characterization of his own firm's competitive orientation.
"That framing of Schwab’s disruption has always been off to me," says the former Schwab exeecutive and former consultant to TD Ameritrade and president of Nexus Strategy.
"They are not a challenger in their sweet spots of the discounters, RIA custodians and digital brokerages. They are the absolute leaders being challenged by others.
"What they are doing is typical of holders of monopolistic power – drive prices to zero in order to eliminate competition, while acquiring weaker players on their path of domination." See: Walt Bettinger sugarcoats nothing to TD Ameritrade RIAs about re-papering or technology and he calls 'modest' the importance of RIA revenues to Schwab
What we are
Schwab chairman and founder Charles "Chuck" Schwab did not mince words about becoming "the strongest" now that TD no longer stands in its way as a competitor, but has joined forces. See: Charles Schwab, a true American oligarch, shows no signs of slowing at 82, throwing his substantial fortune behind Donald Trump, hard-right politics and his continuing financial services revolution
"The merger today isn't about being the biggest," he said in his video posted with the Schwab press release that announced the TD merger's completion.
"It's about being the strongest, an unbelievable fortress of a company with the highest integrity. That's what we are."
In all, Bettinger used the word "challenger" six times in his LinkedIn letter, which he took pains to define.
"We are a challenger company, and that has nothing to do with size, history or background," he writes.
"Being a challenger is a mindset to constantly push for change that leads to better results or outcomes for our clients and employees – as well as better long-term results for our company.
"Many challenger decisions provide immediate benefit to clients, but the rewards for our company and stockholders unfold further in the future. That long-term perspective and willingness to sometimes disrupt our own business are key to being a challenger."
The Cambridge Dictionary's definition of "challenger" includes being an aspect of David battling Goliath: "Someone who tries to win a competition, fight, or sports event from someone who has previously won it."
Bettinger's repetition of the word "challenger" has a spin aspect, Welsh noted
"Ultimately, that challenger word is really a deflection and distraction to anyone paying attention, so that the industry doesn’t see what they are doing at home, which is eliminating challenger competition."
Chuck Schwab referred to TD Ameritrade's decades of competition in his video -- in the past tense -- as a driving force for excellence and innovation.
"It kept us fresh," he said. "It kept us ambitious."
Though Schwab may control 51% of the RIA custody business with $2.6 trillion assets from 10,000 RIA firms, its $6 trillion of assets does not alone lift it into an unknown stratosphere of scale.
Morgan Stanley's 15,500 brokers advise about $2.5 trillion. Fidelity Investments has more than $8 trillion in total assets. BlackRock's total assets top $7.4 trillion. Vanguard's assets exceed $6 trillion.
In his video, Schwab made clear that he does not consider these firms to be in the same class as Schwab, which has a "total focus" on "individual investors and their independent advisors."
"There are companies I might say are like that, but they're not," he said.
In other words, Schwab's biggest "challenger" in the financial advice and brokerage business going forward is is Schwab itself.
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The TDA brand lives on until the techies figure out how to make two systems into one, but change is in the air in Omaha, while Interactive Brokers gets a leg up in the custody business with a new hire.
December 27, 2021 – 9:58 PM
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October 27, 2020 – 1:20 AM
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