TD Waterhouse is offering advisors family-office services they can private label to provide clients with everything from bill-paying to travel planning and property management. Fidelity is getting ready to unleash wireless account access. And firms like Datalynx and CSFB are poised to launch the first-ever systems for Web-based portfolio accounting and reporting.
Suddenly, Schwab Institutional isn't the only game in town. And that's important to know as Schwab continues to make inroads into advisors' business. The largest discount brokerage firm in the country has decided its retail business no longer can rely on do-it-yourself investors and is struggling to remake itself into a new kind of full-service firm. In fact, its retail revenue is down some 50% since highs of a year ago. To supplement its business, Schwab is offering investors most of what advisors offer-everything from financial plans, estate planning and separate account management to tax, insurance and trust services. At the highest level of investor wealth, Schwab is using its acquired trust company, U.S. Trust, to go after investors with $5 million or more in assets. For less well-heeled folks, the brokerage giant has set up six advisory shops it's dubbed "private client" offices to do planning and investment management for investors with at least $1 million in assets. With 443 retail offices to use as a springboard, a full-scale dive by Schwab into advisors' back yards seems probable. Schwab officials say the private-client program is only a pilot and maintain no decision has been made about its permanence.
Advisors who are interested in shopping for custodial services will find a greater selection than ever before. State-of-the-art platforms providing advisors with real back office service, high-end technology and four-star investment programs are out there. While there has been no large exodus from Schwab, advisors are starting to shop around.
Datalynx is one platform hoping to open more advisors' eyes and minds. "It's always been frustrating that when an advisor hires a custodian, they hire Schwab simply because they're biggest," says Skip Schweiss, who oversees operations at Datalynx. "Now that Schwab has been making moves that turn off a lot of advisors, that helps us. Most advisors' bone of contention isn't Schwab's service, it's the competitive issue, which is enough to prompt some advisors to start examining their choices."
Advisors with blinders on may be missing out on some vital service offerings. Datalynx, for instance, expects to be one of the first platforms to give advisors Web-based portfolio accounting and performance reporting by the end of the year. Advisors, as they requested, will have the option of making the reports look like they're produced in-house or like Datalynx produced them.
"We let the advisors do most of the leading," says Schweiss. "And we're careful about who we do business with. We don't want to outstrip our ability to serve advisors." Datalynx currently works with 332 advisory firms and is expecting to sign another 50 firms in the next year.
Advisor-centric platforms and the ability to create or obtain technology and products and services quickly is the norm at some companies. That's due in part to new entrants with deep pockets, such CSFBdirect Institutional, a division of Credit Suisse First Boston. CFSB launched its advisor platform earlier this year after two years of careful research and build-out.
The process started with workflow analysis at some of the country's leading advisory shops that culminated in what Jeff Roush, CSFBdirect Institutional's senior vice president and director of corporate development, calls "our straw man, which we then implemented with the same advisors. We evolved from there before launching early this year."
In addition to building portfolio accounting and performance reporting into its platform, CFSB maintains a separate Web site designed specifically for advisors' clients. "There are no perceived conflicts of interest. We don't market to advisors' customers," Roush says.
As platforms have gone upscale, so have clients. What do you do with the handful of demanding and very wealthy clients who expect more service than the rest of your clientele? TD Waterhouse has designed a family-office service that advisors can private label. The service provides elite clients with whatever they need, including bill-paying, secretarial services and even estimates on new roofs. The cost? Approximately $400 to $600 per month.
The company also is pushing the envelope with its investment offerings, says TD Waterhouse President Tom Bradley. Recent service enhancements include a partnership with Goldman Sachs that makes the investment bank's institutional research and IPOs available to advisors who use the Waterhouse platform. Waterhouse also is poised to offer advisors highly competitive mortgage products.
The innovations have attracted both small and large firms and helped Waterhouse capture about $15 billion in assets to date. When Joseph Kiely, a longtime professor of finance, most recently with East Carolina University, decided to get into the business, he talked to a lot of platforms and most told him: "'What can you do for us? Come back when you have more assets,'" Kiely says.
"Waterhouse said, 'We want your input, and we can help you grow,'" says Kiely, whose Greenville, N.C.-based firm has grown to $170 million in assets under management in its first five years. "Schwab is trying to be all things to all people. Waterhouse is smart enough to ask us what we need, instead of telling us. Anytime we make a suggestion, they say, 'That's a good idea. Who do we call?' We look at all our options all the time, but we stay with Waterhouse because of the service."
Most advisors are entrepreneurs at heart, so it's not surprising that a "make it happen" attitude is important in their custodians, too. That's one reason Rick Adkins says he stays with Fidelity Investments Institutional Brokerage. The president of the Little Rock-based Arkansas Financial Group says he wound up using Fidelity almost by chance because a few very wealthy clients were so comfortable with the firm. Finding out that Schwab was charging different prices in different regions and his firm was paying more than others with fewer assets didn't sit well with him, either. "We were getting a whopping 10% discount on a $55 ticket charge," says Adkins. "We told them about it a few times, and they said, 'Sorry, but there's nothing we can do.'"
He still retains some assets at Schwab, but since 1994 has been opening client accounts at Fidelity, where he says his firm gets services it appreciates. Among Fidelity's strong points? Its vast bond inventory. "When they have odd lots, you can get phenomenal deals," Adkins says. Its allocation software, institutional research and one-stop consolidated Web-site accounts for clients also are selling points.
But it's the firm's entrepreneurial mindset that continues to win Adkins over. "We were at a meeting with Fidelity people, and we said we'd like to offer an Arkansas muni-bond fund on a no-load basis. Within a week, they cut a deal, and it was done. That would never have happened at Schwab," says Adkins.
Fidelity, which works with 1,368 advisors, expects to grow at 25% to 30% in the next year. "We try to be consultative," says Executive Vice President Jay Lanigan. "We try to understand what advisors need. We're fortunate to be able to leverage the larger corporation and the multiple businesses we have for advisors." In addition to building the firm's investment and separate-account management offerings, (its most recent alliance gives advisors access to the multimanager expertise of Russell Managed Portfolios), the giant continues to make breakthrough technology, like wireless account retrieval, available to advisors and their clients.
Still, according to leading brokerage and custodial executives, even great service and all the bells and whistles in the world can't entice some advisors to change custodial platforms. It's part comfort, part fear of the unknown, with inertia and sometimes lack of knowledge thrown in. No one ever said changing custodians is easy. Instead of just moving your own household, it's like moving everyone of your customers' households, too, all at the same time. It's not suprising that can keep advisors in relationships long past their usefulness.
Eric Rudney, principal of Rudney Associates in San Ramon, Calif., outgrew his midsize broker-dealer slowly as he transitioned his business to a fee-only firm. "What I really needed was a seamless custodian. I didn't need the marketing, compliance or turnkey operational assistance my broker-dealer was providing," says Rudney, who characterizes his firm as mid-sized. He shopped many of the big wirehouses and custodians before signing on with TD Waterhouse earlier this year. It was its service and culture that sold him, he says. The fact that TD Waterhouse President Tom Bradley paid him a visit probably didn't hurt, either.
To make the transition smooth, custodial firms now have dedicated teams and systems people who will come to your office, can transfer all client files and accounts online and will create your Web presence quickly.
Of course, the best service in the world doesn't mean that at some time your custodian won't be a competitor, too. But the firms we spoke to say they have no plans to duplicate Schwab's advisory services. But some said they could not make promises about what might happen five or 10 years from now.
Maybe the best advice for advisors comes from TD Waterhouse's Bradley. "I tell advisors to talk to everyone. Competition can crop up at any time from anyone. You have to be willing to change and adapt and give clients what they need when they need it. If trust companies are providing family-office services, maybe your high-end clients need them, too. The best advice I have is, use your leverage and expertise to find a custodial partnership that allows you to compete head-on," Bradley says.