A $3 billion TD Ameritrade RIA pulls assets out of Schwab --after it cut services for TDA RIAs, and got sticker shock -- ahead of merger date

A $3.1 billion AUM RIA owner from Haslett, Mich., is one of the first to reveal what Schwab will offer TD Ameritrade (TDA) RIAs, once the two firms are fully integrated, and it was enough for him to jump ship.  

Anthony “Tony” J. Mazzali's RIA, CG Advisor Network, is transitioning most assets to LPL Financial – a leap of faith for a big, pure RIA – in an attempt to replicate the service, fees and culture he had grown to love in 20 years at TDA.

His move suggests that Schwab may have to reassess its offerings and up its game, if it hopes to hold onto RIAs in an increasingly competitive market for custody services.

"Some TDA RIAs will find the Schwab culture and platform very appealing, while others will miss the TDA days and will look for alternatives. It would be illusionary for Schwab to believe they can retain 100% of TDA’s RIAs,” says Alois Pirker, partner of Pirker Partners.

The catalyst to search for a new custodian came the old-fashioned way – sticker shock – he says. 

"Schwab came with a two-page fee schedule our clients had to pay, and I looked at [them] and said, ‘Are you kidding me? Are you expecting our clients to pay for these, and they hadn’t paid them in 20 years?" 

Mazzali declined to get too granular but said Schwab was imposing ticket fees on clients they weren't paying under TDA.  “We had a very advantageous proposition for our clients with no trading fees for 20 years.

"They've got every right to price the business, but it was a shift for us," he says. 

Schwab did not respond to emails seeking comment.

Sticking points

Mazzali says his concerns about Schwab/TDA custody services mounted from the time Schwab announced the TDA merger in 2019 – largely because he lost dedicated service reps assigned to his 70 IARs in favor of a call center.

“There was always a point of contact. There wasn't going to be a single point of contact,” Mazzali says. As a result, his firm experienced subpar service.

“We were there when TD bought Ameritrade. As far as scale, it’s not even close. There were service disruptions after that transaction for 18 months. We worked through them, and we knew this wouldn't be perfect," he says.  

"This transaction is way different from that. Quite frankly, the communication we’re getting, and the feel from the communication was nothing like I’ve ever experienced before in this world, and maybe it’s because we were spoiled at TD.

Mazzali said that not having a point of contact at Schwab became a major sticking point.

“At the end of the day, we were having problems with answering calls and wait times,” Mazzali says. “I think TD is a big thing for them to swallow and the service is not going to get better. One of the big hurdles for clients was the system disruptions." See: Schwab Advisor Services denies reports of a Sept. 2023 'hard date' to finalize TD Ameritrade merger as new details emerge about behind-the-scenes efforts to accomodate TDA RIAs

Service counts

During the company's conference call in April, Schwab executives painted a starkly different picture of service. 

They said the firm's service to end-clients during the TDA integration was top-notch, with clients only on hold for 30 seconds.  See: Overshadowed by Schwab's 'unrealized' loss overhang, the company gained 500,000 TD Ameritrade clients in February, putting $500 billion in held-away TDA assets in play

Schwab executives said the firm's response time during the integration was fast. They promised the same for TDA clients, even if the call volume is significantly higher.

“Millions of existing Schwab clients will be exposed to the world-class retail trading platforms that were previously only available to Ameritrade clients,” said Schwab CEO Walt Bettinger during a Monday analysts' call.  See: In rare form, Schwab's Bernie Clark calls out rivals -- not least Fidelity, Goldman Sachs and LPL -- by name and warns them about challenging Schwab's prohibitive custody business domination

Company executives during that call did not address RIA customer service.

Not all legacy TDA advisors have received revised fee schedules yet, says Alan Moore, CEO of XY Planning Network. But he expects that the players will keep each other in a tight range.

“I think it's great that LPL, Altruist, and others are building out RIA custodians that give advisors options, which should help put pressure on Schwab to ensure they are providing the high-quality service that is expected of them,” Moore says. 

Competing with advisors

Schwab's approach to competing with advisors was something he would never have expected at TDA, Mazzali adds. 

Senior Schwab executives were candid that Schwab competes with advisors for clients with $1 million in assets and less. 

“That in itself doesn’t concern me. I don't perceive that as a threat. 

"But when you add in data and where the industry is going with who controls data information and client information, and we have no say in how they use the data and who they use it for - when that's your vendor partner - that's a concern,” Mazzali says.

Mazzali also expressed interest in purchasing retail branches that Schwab might want to sell from TDA's Scottrade purchase in 2018, but the firm didn't seem to want to consider its RIAs, Mazzali says. 

“If they were going to shed branches, it wasn't a strategy to see if any of your RIA partners would be interested.” 

TD Ameritrade was known for its excellent service to RIAs, says Pirker.

“TDA also had figured out how to provide good service to small RIA firms," he says. 

“It all comes down to culture, strategy, and when the service problems will end. Those are three big things. It's enough,” says Mazzali. 

Expanding RIA custody

Mazzali says the firm plans to move the bulk of its assets to LPL and will use them purely as a custodian. 

Mazzali says his clients will get prices at LPL comparable to TDA. LPL executives declined to discuss their fee structure and say different practices get different deals.

Mazzali will keep some assets with Schwab, hoping that things will change in the future, but for now, LPL will be its flagship custodian, and he's also looking for additional custodians. 

“We won't zero out our relationship. It's in hopes that there's a change. We'll watch what their culture and strategy develop to. It appears that doesn't align with us, but that could change.” 

One of the most important factors in convincing CG to move assets to LPL Financial was when it agreed to upgrade to real-time reporting through Orion Advisor Services, Mazzali says. 

He points out that his firm uses Orion as its performance reporting system but said LPL only got batch data at daily intervals and not a live-daily feed. With TD it was live. 

“With TD, I can sit on my Orion system, and we bought $75 million of something, and we'd clear it, and I'd see it in minutes. With LPL's system, we'd have to wait until the end of the day's batch. I'd be on the phone with trading and have to do it old-school.” 

“That was a deal-breaker for us. We can't execute our portfolios when we're trading. Those were accommodations that LPL said made sense, and they figured out how to do it.” 

LPL's willingness to customize sold CG, Mazzali says. “LPL is big enough to compete in this space. They've shown us they will make changes in technology and data to accommodate [RIAs].” 

Sizable poach

LPL's ability to poach a $3-billion AUM RIA's assets from Schwab, with $7 trillion in assets from 13,000 RIA firms, is drawing analysts' attention. 

“Overall, when considering the $3.1 billion of assets moving from TDA to LPL, CG is a sizable firm," says Stephen Caruso, an analyst with Boston-based Cerulli Associates.

"Only 8.7% of RIAs manage $1 billion or more in assets, meaning that CG is among a limited group of RIA firms that have reached this level of scale," 

“While one client—even a sizable one—does not tip the scales for any custodian, large firms like CG are still relatively rare in the RIA marketplace,” Caruso adds.

“We very much view our advisors as partnerships at the end of the day. They're a great partner. A great firm like Tony's firm helps us grow," 

While LPL historically hasn't won much custody-only RIA business, Gary Carrai, a CFA and an LPL executive vice president, says that's changing. “We've been growing our RIA-custody business for years. We're so happy to support them."

LPL has been inching in that direction under Bill Morrissey's replacement, Rich Steinmeier, managing director and divisional president of business development at LPL. See: As era ends, Bill Morrissey steps down to make way for younger exec who leaves job as UBS's digital guru

And it may be ready to pounce.

“It’s clear the custodial landscape is shifting, and we’re encouraged by LPL’s efforts to attract firms that are looking for strength, stability, and a true partnership,” Steinmeier writes in an email. 

LPL CEO Dan Arnold signaled his firm sees fresh opportunities. “That is certainly a change in the marketplace. It could be a catalyst for advisors looking for different options and alternatives.” See: Dan Arnold finally plays LPL's RIA custody card hiring five senior RIA recruiters caught in Schwab-TD Ameritrade post-merger 'churn,' signaling possible direct challenge to the industry leader

Waiting game

One big lesson that Mazzli has learned is he no longer wants to hold all of his assets at one custodian. LPL is his flagship custodian, but he's looking to diversify further – with Raymond James, Axos and Altruist in the running.

“I give credit to them in engaging with us. We went through a long due diligence, and we have a tech stack. You can't speak to us parent-as-child. We have to have a parent-parent relationship," Mazzali says.

“We had a long track record with TD, and we had a great relationship with senior management. We believed in the culture, strategy and advisor-first strategy - all of that.” Mazzali says. 

Mazzali says he deliberately waited nearly three years before deciding to move assets, because he didn't want to be hasty.

“We just set back, and rather than be a squeaky wheel, we wanted to see how things went, and it looked like watching a circus from high above."