MAP has two levels of service: Premier and Premier Plus. Says Murtha, "The Premier program is designed to work with advisors who already have a certain comfort level and sufficient working knowledge of separate accounts. The Premier program uses all the tools of EnvestnetPMC, but allows the advisor to do his or her own due diligence, proposal generation, asset allocation and ongoing monitoring. The Premier Plus program provides access to outsourced vendors, who offer manager search and research capabilities, as well as the same services Premier offers but on an integrated platform, which is actually EnvestnetPMC's platform privately labeled and fully customized by Waterhouse for its clients."
In the past, some advisors have felt that Schwab posed a competitive threat to its own clients by offering high-net-worth advisory services within its own ranks. According to advisor Harv Ames of Ames Planning Associates Inc. in Peterborough, N.H., "We've looked around for alternatives up until the last few years, because Schwab has been perceived by me and my peers as becoming increasingly competitive with us by offering advisor services in its branches. But recently, it seems Schwab has once again become advisor-friendly."
Ames claims that Schwab was the "big Kahuna" 11 years ago when he transitioned his practice to fee-only services. He decided to use Schwab because it offered the systems he needed and smooth operation of those systems. In the early days, Ames says Schwab also offered unparalleled service to its advisors.
After losing that focus, Ames says he became disheartened, but later Schwab began courting advisors in much the same way as before. Increased competition from the likes of TD Waterhouse and Fidelity may be one reason for a resumption of the good service. Ames believes another reason may have to do with the recent bear market. "They lost revenue on the trading side but they didn't lose much on the advisor side. Our part of the revenues went up, so they became more aware of the possibility of losing market share," adds Ames. "The higher market share you have, the higher your profitability. Lose market share and you lose not only the absolute profitability, but also the relative profitability."
Fee Structures-Then And Now
Not only was Schwab innovative in setting up the program initially, but its fee structure and completely open architecture business model was the first of its kind. The fees were unbundled and clients could see how much was being charged for what service.
With its Managed Accounts Select program, Schwab delivers Callan Associates research and review, the money manager's fee and all trading costs and services for one all-inclusive fee. So the client pays no more than 1% for this combined package of services, including the product fees. "We start at 1% and it goes down from there," Morris explains. "If it's a $1 million arrangement where the client has it all in Select, it would be delivered at 86 basis points. When you think about that, the advisor can then add 70 basis points on top of that, which would be 1.56% to the client, completely all in. That's extremely competitive as opposed to what's being offered through the wirehouses."
Morris also sees a lot of wirehouse advisor attrition down the road as a result of competition in the areas of fees and efficient service provision. "An advisor can make fees entirely neutral for the client and still be making, maybe, 70 to 80 basis points or more by simply being independent," he says. Wirehouse advisors tend to worry that they will have problems replacing the level of services provided them if they go independent, so Morris says Schwab concentrates on providing services in a way that enables advisors to implement their practices in a profitable manner.
TD Waterhouse says EnvestnetPMC is constructing a multiple style account that will allow the fees to be all-inclusive. Currently, clients pay a management fee to the advisor, the money management fees to the money managers and applicable product fees associated with the specific investment vehicles chosen. Waterhouse's program fees can be as high as100 basis points in the Premier program and 125 basis points in Premier Plus, neither of which includes the advisory fee covering custodial services, trade execution and clearing, the underlying sub-manager or the research and platform services of EnvestnetPMC. So the client pays one fee for the advisory services, one for product services and another for the management services.
Points Of Distinction
In comparing Schwab's offerings to Fidelity's and Waterhouse's, the first comment regards size. Schwab's massiveness and the length of time it has been addressing the separate account market give it a clear advantage in many ways. Some may say that Schwab has sacrificed service in the past in order trying to be all things to all advisors. But, according to many advisors, the service focus has changed for the better, and Schwab's offerings undoubtedly offer some advantages through size and experience in the separate account marketplace.
When comparing other providers with a powerhouse like Schwab, such things as advisory educational levels, service delivery, technological capability and ease of assimilation also come into play.