RIAs are expressing mixed feelings about Charles Schwab’s $26 billiion planned acquisition of rival custodian TD Ameritrade.

Competitors, ranging from giants like Fidelity to smaller speciality fintech companies, are eager to capitalize on what they hope will turn into a wave of dissatisfaction. But that has yet to materialize.

While some advisors are optimistic that the deal could mean better services for RIAs across the board, others fear that the transaction will leave smaller firms behind and stifle innovation.

“From a consumer perspective, I don’t see a good outcome coming from this deal,” said an advisor at a large New York RIA who asked not to be identified. “There are two large players consolidating, the public won’t be well served, there will be fewer choices and less competition.”

The deal, announced two weeks ago, would merge the nation's two largest publicly traded discount brokers into a gargantuan entity with more than $5 trillion in client assets. The companies said they expected to close in the latter half of 2020, but that's pending a regulatory review.

Jim Besaw, chief investment  officer at GenTrust, an RIA with offices in New York and Miami, saw the transaction as a logical next step for the financial industry.

“It’s the logical evolution of the business,” said Besaw. “It’s part of costs going lower across the board and having retail investors access investing at the lowest possible costs.”

Over the years, TD Ameritrade has made efforts to work with smaller advisors and help them to build and, if desired, grow their practices, but the company has placed less emphasis on rapid growth and advisor transactions than Schwab. With the acquisition, smaller firms comfortable in their relationship with TD Ameritrade may balk under pressure to either grow or to sell to a larger competitor in the marketplace.

Unlike TD Ameritrade, Schwab has established AUM minimums for its advisor clients and growth expectations for newer firms, which could leave some TD-custodied advisors looking for a new partner.

In recent blog posts, Pinnacle Advisors’ Michael Kitces noted “trepidation” from large and small RIAs alike. While small RIAs fretted over service levels and asset minimums, larger RIAs have been able to play custodians off of one another for better services and deals, and have been able to enjoy the independence of being multicustodial, he said. With a huge combined firm potentially dominating the industry, being multicustodian may no longer make sense.

If TD Ameritrade’s advisor referral network is also subsumed into Schwab’s, it may also eliminate a potential source of clients and assets from advisors, creating fewer and larger winners, according to Kitces.

Some advisors, like Mike Kurz, CEO of Frisco, Texas-based OverShare Advice and Planning, believe Schwab is right to segment out smaller advisors for a lower tier of services, or to try to avoid serving them altogether. Smaller advisors not interested in growth might not have a future in the financial industry if they continue to go it alone, said Kurz.

“Regardless of the size of AUM, the one-dimensional practitioner is going to struggle when they don’t have the necessary sercice providers/vendors to fill in the gaps,” said Kurz. “If these types of practitioners are expecting the custodians to deliver a full-service offering for very little expense, then this group may feel like they are getting below-par service. I would encourage that advisor/practitioner profile to consider joining a team or connecting with one of the enterprise-type firms to provide the services they need in return for a portion of their revenue.”

Elliott believes the deal will allow Schwab to improve or enhance its service offerings for smaller RIAs. There’s been at least one sign that Schwab may place more focus on smaller advisors: Last week Schwab announced it hired former TD Ameritrade CEO Tom Bradley to head Schwab’s RIA custody business for firms with less than $100 million AUM.

The anonymous New York-based advisor, who formerly held a leadership role in a financial advisor professional organization, said that he would be looking for a new custodian ahead of the transaction.

“I’m going to be seeking out other firms as well,” he said. “I can’t imagine Schwab continuing TD Ameritrade’s service, and I’ve been extremely happy with TD. I feel bad for the consumer.”

James Kinney, an advisor with Bridgewater, N.J.-based Financial Pathways who also custodies with TD Ameritrade, said that he is considering looking elsewhere before his custodian is consumed by Schwab.

David Wilson, senior wealth manager with New York-based Watts Capital, said that he will take a wait-and-see approach  to determine if he changes custodians.

“We want to evaluate our custody relationship every year,” said Wilson. “The vast majority of our cients are on the Schwab platform. It’s something we're going to watch very closely in terms of the services they provide and their fees or potential fees. We’re just going to continue to evaluate if Schwab is the best option for our client base.”

Smaller custodians like TradePMR and Shareholder Service Group have already reported more inquiries.

“We have been getting more inquiries than usual in light of the ... merger.,” said Robb Baldwin, founder, president and CEO of TradePMR, in comments released to the media. “Our advisor communications team is in talks with a number of advisors who are interested in TradePMR’s solution. We will continue to field calls and speak with quality advisors who value solid operational support and high service levels.”

TD Ameritrade’s services have been perceived as superior to Schwab’s, in part because of a more open corporate culture, said Andi McNamara, director of financial planning at Lexington, Mass.-based Wingate Wealth Advisors.

“In my experience, TD has been a more flexible custodian than Schwab or Fidelity,” said McNamara. “It was always easier to get a decision-maker on the phone if you needed soething done that may be a little out of the ordinary.”

TD Ameritrade’s employees have seemed more empowered by their corporate culture to answer questions directly and honestly, said McNamara, and have been quicker to acknowledge and adjust to industry trends.

Other advisors have avoided Schwab because of what they see as poor service and value to advisors and clients.

“Between Schwab and TD Ameritrade, Schwab is historically not as competitive and has not provided services that I’ve experienced that come anywhere close to what TD has offered advisors,” said the anonymous New York advisor. “They’ve been an expensive proposition for clients. Anyone dealing with Schwab will have to push back on that.”

TD Ameritrade has often ended up being a better value for the end client, he said, offering more services and often at lower prices than Schwab.

TD Ameritrade has also built a reputation for innovation, particularly around advisor-facing technology, thanks in part to its open-architecture approach, advisors say. While Schwab has also made great strides in its technology offerings its more closed ecosystem is less conducive to innovation.

“TD has been aggressive in their approach to technology and innovation, obviously driven by their position as a smaller upstart competitor to the likes of Schwab,” said Kinney. “Their technology improvements have been a huge boon to our small independent practice, as they have allowed us to service more clients without adding staff. I fear that this merger will stifle that innoviation, potentially with impacts throughout the fintech industry.”

In his blog posts, Kitces said the deal puts the future of TD Ameritrade’s open-architecture VEO platform up in the air. Schwab’s competing offering, the OpenView Gateway, still lags VEO in openness, he said, meaning fintech start-ups may not have a custodial partner to work with to get their new technologies in front of advisors.

TD Ameritrade’s technology stance has helped smaller advisors scale and grow their practices, said Kinney.

Some advisors were concerned that news of the acquisition came on the heels of an announcement by Schwab that advisors with less than $200 million AUM will be serviced via a call bank and a 1-800 number rather than by a dedicated relationship manager.

Yet some Schwab clients argue that the transition to a 1-800 service for smaller RIAs will not make much of a difference in how Schwab serves advisors. Bernard Kiely, founder of Morristown, N.J.-based Kiely Capital Management, has custodied his sub-$100 million RIA with Schwab since 1990.

“I don’t see not having a person to call as a problem,” said Kiely. “I’m trying to think of the last time I had a problem where I had to speak to a person. Sometimes there are questions about moving money and stuff.”

In fact, a lower-touch, higher-tech service is becoming the norm between custodians and advisors of all sizes. Fewer firms are given dedicated relationship managers, and fewer of those firms are actually using their manager.

“Most of the work we do with Schwab is already computerized now. That’s where they create their benefit,” said Kiely. “We don’t get paper statements anymore. It’s all on the internet. We can open accounts without talking to anyone, and we can move money without talking to anyone.”

But Schwab’s success at using a phone number to service smaller advisors depends on how reliable that service is, said Kiely, adding that advisors will look elsewhere if they can’t get the help they need on the phone.

Matt Elliott, principal at Rochester, Minn.-based Pulse Financial Planning, argued that Schwab’s services are already better than TD Ameritrades in many ways, especially for retail investors.

“The potential for better service at TD Ameritrade was the one silver lining that may exist within the transition for existing TD Advisors to Schwab,” said Elliott. “Schwab certainly has a better reputation on service, and I can confirm that has been my experience so far. This may not be the case if Schwab is looking to ptofit from scale and not service lower AUM advisors with the same standard that they do currently.”

Moving to Schwab would also enable TD Ameritrade-custodied advisors to offer value-add services to their clients, such as donor-advised funds and international ATMs, without having to access a third-party company, said Elliott.

Kurz also believed that the acquisition will be a net positive for RIAs.

“Large-scale enterprise firms are here to stay and most will continue to grow and be successful,” said Kurz. “I do not feel that this means the smaller advisor automatically loses out or gets left behind. As custodians grow in their ability to serve more enterprise firms with more accounts and more transactions, they will utilize new technologies to gain efficiencies to serve these firms. I believe that will create more efficiencies to serve the smaller advisor along the way.”

Not all of Schwab’s clients are happy with the level of services they currently received, especially when compared to TD Ameritrade’s offerings. Among advisors who use both Schwab and TD Ameritrade, like Kiely and the anonymous New York-based advisor, many favor the features offered by TD Ameritrade.

“I’ve always told people that if I was starting out today, I would be with TD Ameritrade and not with Schwab,” said Kiely. “Schwab is really looking for the billion-dollar advisor.”

TD Ameritrade’s willingness to work with smaller advisors also gave younger and newly independent RIAs an opportunity to grow and develop at their own pace, advisors said. But new advisors may have difficulty finding custodians to work with them moving forward, worried the New York-based advisor.

“There’s not a clear path for younger advisors into independence now. You’re going to have to start clean and look at the various players in the custodian business,” he said. “If they’re smart, everyone else will put money into marketing to pick off disenfranchised TD Ameritrade folks and position themselves as TD had.”

The timing of the acquisition has also raised some eyebrows, as it comes on the heels of Schwab’s decision to eliminate trading commissions and fees on stocks and ETFs. That move had a small impact of Schwab’s bottom line—trading commissiokns made up 7% of the company’s revenue in 2018—but the decision to follow suit had a major impact on other companies, like TD Ameritrade, who were more dependent on the revenues provided by commissions. Ending commissions sent TD Ameritrade’s stock price on a rapid decline.

“I ... wonder if Schwab deliberately manipulated the markets by cutting fees to zero in order to drive the stock price of its competitor down before the acquisition,” said Kinney, adding that he wonders if Schwab will raise fees again after a successful merger.

RIAs will have plenty of time to survey the industry landscape and decide whether they want to stay with Charles Schwab. According to Schwab executives, the transaction is unlikely to close until the second half of 2020, and the integration of the two companies will take between 18 and 36 months to complete, meaning advisors might not see any real changes or impacts until 2023.

Some advisors noted that the timing of the transaction makes it less likely that regulators will balk at the creation of a $5 trillion financial behemoth that could dominate 70% to 80% of the U.S. RIA custody business.

“Under the current administration, this is not likely to get the same scrutiny from an anti-trust perspective that it might otherwise get,” said the anonymous New York advisor.

With less—or no—revenue coming from commissions, Besaw wondered what the future services provided to RIAs and the end-investor would look like.

“In the short-term, this deal is a good thing, but in the long-term, I don’t know,” said Besaw. “I do worry, if costs go down, how custodial platforms will continue to pay for the services they provide. It takes a lot of infrastructure for them to do what they do, and they’re not going to go to zero fees across the board.”

Kurz argued that, rather than worry about the acquisition, advisors are better served focusing on the evolution of their own firms. They may even want to go ahead and embrace Schwab’s focus on larger, enterprise-style firms, he said.

“For financial advisors and firms that are custodied at these two firms and are concerned about the future, we would challenge them to focus first on their approach with clients, their processes and their client engagement systems,” said Kurz. “We have found that when you deliver an exceptional client experience and you do so with a straightforward approach that clearly positions the client at the head of the table, these types of business activities will provide opportunities to grow and evolve for the better.”

For most advisors, though, the acquisition will be much ado about nothing, said Kiely.

“I really don’t see much of a problem. The day after the merger will be just like the day before,” said Kiely. “The two companies will absorb each other incrementally.”