Schwab, TD, the Industry and Us

The Financial Services industry has changed. I can’t even count how many times I’ve said these words and heard them over and again. Our industry has evolved over the decades and technological innovations continue to disrupt and make change. It is a hyper-competitive industry. And apparently, it’s about to get more competitive. I woke up Thursday morning to shockwaves when it was reported that Schwab is rumored to be buying TD Ameritrade. I froze for a good 2 minutes. The implications for our industry and our firm are massive. They are fierce competitors. As you probably know, we custody accounts with both TD and Schwab.

First thing’s first; it is still speculation. The deal has not been confirmed, though behind closed doors it sounds like something is indeed taking place. Matching Schwab and TD Ameritrade would create a financial behemoth with over $5 Trillion in combined assets. A deal between these two would further consolidate an industry going through massive disruption. It was just two months ago when Schwab announced it was taking trade commissions to zero. Schwab forced the industry’s hand. Fidelity and TD Ameritrade were forced to follow. This was a very tactical move by Schwab. They knew zero commissions were inevitable. They also knew TD was more vulnerable. Trading commissions were ¼ of TD’s total revenue at the time. It represented just 7% for Schwab. Brokerage firms have been scrambling to find ways to maintain profits. Keep in mind, they’ve been competing with Silicon Valley in the space the last few years as venture capital backed start-up Robinhood offered free stock trades in 2013, and FinTech disruptor Square offers fractional share purchases for free, attracting the young investor. Disrupt or die is the motto.

I have been a member of TD President’s Council for over a decade now and was a member of Schwab’s Executive Leadership Program last year. Both companies are tight-lipped on these rumors. That comes as no surprise. I spoke with some of my colleagues in both groups, and all were quite surprised and some concerned about what this might mean for the industry and our businesses. The concern is increased competition and less support as partners. Keep in mind, TD shocked the industry, and our group for that matter, announcing over the Summer that its CEO was leaving the company in February of next year. The answer to why was never clear, other than there were perhaps disagreements with the board. This is a significant event because just six months earlier, TD announced a major commitment to aggressively support and not compete with its Registered Investment Advisors (RIA’s). We are among them. Schwab is a double-edged sword on this topic, providing support to its RIA’s on one side, while aggressively competing with us pushing its Wealth Management offering from its 345 branches across the country. It now makes me wonder how long a deal has been in the works.

Mergers & Acquisitions has been a major theme this year. Larger companies in pretty much every industry are looking for ways to continue to grow, and the attitude that bigger is better is back. We don’t agree because the large institutions are creating a “one-size fits all” platform with various buckets in which to drop clients in, and claim it’s personalized. The Financial Services industry has been going after our model for years, and they have been effective in graying the lines between a broker and a Registered Investment Advisor. The average person doesn’t know the difference. We are regulated by the SEC, while brokers are regulated by FINRA. Brokers have traditionally been commission-based. The other important point is the brokerage industry does not follow the fiduciary standard in which we do, where the client’s best interest is always first. That is the RIA standard.

We have always been about the human element, where personalization and customization is our approach. That won’t change on my watch. We are one of the few firms who still embrace individual stock and bond portfolios, which provide the ultimate transparency and tax-efficiency. It’s the traditional way to invest and we continue to evolve this approach in the modern world. We’re in the Business of Life, forging long-term partnerships helping you plan retirement, save for college for your kids and grandkids and make sure your money is working as hard as you are. Our independence allows us to answer to just one entity: You. We’re nimble in our approach and tactical in our execution. It’s way too early to tell whether this deal would be good for the industry or not. We will gather the facts and adjust accordingly. We’ve been competing at a high level for decades and industry consolidation is not going to change that. We enjoy it. It’s our purpose. Most of my peers think I’m crazy for writing a weekly newsletter. Well, that’s what we do.

Have a nice weekend.

We’ll be back, dark and early on Monday.


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