Advisors scrutinize big firmsí focus on direct sales.

As the competition for client assets heats up in a tightening market, so too, it seems, does the tension between independent advisors and their custodians.

An increasing number of firms are stepping up the their direct sales operations, raising questions about whether they're intruding into the same market as their advisor clients.

Such concerns used to be considered a "Schwab thing," as market leader Charles Schwab was the one making dramatic moves in the direct sales market while serving thousands of independent advisors.

That's no longer the case, however, as other firms with both retail and custodial arms try to tangle with competition, tighter margins and demands from investors for a more diversified array of offerings.

"I wouldn't be surprised if you see more robust offerings from companies like TD Waterhouse and Fidelity," says Matt McGinness, an analyst with Cerulli Associates, a financial services research and consulting firm in Cambridge, Mass. "If they don't, they'll risk losing clients to the Merrill Lynch's of the world."

Whenever they do make moves on the retail side, however, they are straddling what many advisors feel is a blurry line-the line between serving an advisor clientele and competing against it.

This was clear three years ago when Charles Schwab bought U.S. Trust, a dramatic move that signaled the company's resolute desire to establish itself in the high-net-worth market many advisors coveted. The move, however, rankled some of the independent advisors who relied on Schwab, as did Schwab's decision a year later to unveil a "private-client office" program aimed at directly serving affluent clients.

Now Schwab isn't alone in such endeavors. Recent reports of TD Waterhouse and SEI Investments Co. stepping up their direct sales efforts came as a shock to some advisors, particularly those who signed on with the firms to avoid such conflicts.

In an indication of how sensitive the issue is among custodians, Waterhouse sent out a letter to its advisors immediately after the reports, denying it planned on competing with them. The letter stated the reports of a "full-service division" at Waterhouse were incorrectly drawn from a discussion at its national conference about plans to expand investment tools for self-directed retail customers.

J. Thomas Bradley, president of TD Waterhouse Institutional Services, could not be reached for comment, but in a written statement he asserted that there is no connection between the firm's retail efforts and the market served by its advisor clients. "TD Waterhouse Investment Centers have been in existence for five years and offer limited, non-discretionary guidance, whereas virtually all of our advisors have full-service relationships including trading authorization for client accounts," Bradley says.