2. The deal means better economies of scale and efficiencies.
At a minimum, the merger should produce better economies of scale. While these will likely benefit Schwab’s shareholders, advisors can expect that at least some of them will be shared with RIAs and their clients, perhaps leading to better pricing on services and transactions that are not already free.
Consider the many RIAs that utilize the services of multiple custodians, including Schwab and TDA. By consolidating the two into one, RIAs that currently use both custodians can themselves expect to achieve greater operational efficiencies with one less platform on which they are required to work.
A further potential benefit comes from the way that Schwab and TDA provide support services to RIAs. Both firms offer tiered service levels, with the best offerings available only to their larger RIA clients. It seems likely that, as multi-custodial RIAs consolidate their Schwab and TDA relationships, they can expect to have access to higher tiers of service from Schwab, if only because their overall relationship with the firm is now larger.
3. The deal will put increased competitive pressure on other custodians.
The other powers are on notice. The new Schwab will be the clear leader in the RIA custodial space (at least in terms of size), and competitors will either need to be even better or find their own unique competitive niches to keep pace with the leader. This trend should serve RIAs well as they benefit from the new measures taken, and investments made, by the competition.
4. The deal will create expanded referral platforms.
RIAs participating in the Schwab Advisor Network or the TDA Advisor Direct referral platform can expect access to more retail branches, along with the elimination of competition among the legacy Schwab and TDA branches (TDA having previously acquired the Scottrade branches). There are differences between the two programs in how they charge RIAs for referrals, but any negative fee changes should be offset by increased opportunities.
5. The company will have an increased power to advocate for RIAs.
One of the more underappreciated things that Schwab and TDA (as well as Fidelity and certain other custodians) do for RIAs is advocate for them to the public and government, which constantly need to be reminded of what RIAs stand for in the face of massive advertising and public relations campaigns funded by the broker-dealer industry. It is likely that RIA advocacy will be even stronger as Schwab and TDA join forces, achieve a greater collective voice and ultimately use their combined might for right on behalf of consumers.
Why The Merger Is Bad For RIAs
1. There will be less competition among RIA custodians.
It’s worth noting that the merger could be derailed by antitrust regulators if they see it as stifling competition in the custodial space. It might, and less competition generally is not good for innovation, market efficiency or, ultimately, consumers. That being said, Schwab and TDA are much more than just custodians, and regulators may allow the merger because, holistically, the two firms’ ability to move toward anything resembling a monopoly is limited to a smaller segment of their overall businesses.
2. The deal will create more competition against RIAs.
Ironically, while the merger will create less competition among the custodians, it may create more competition against registered investment advisors. Some RIAs now see the retail and other advisory businesses within Schwab and certain other custodians as competitors—a form of “co-opetition,” so to speak. Competition from Schwab could intensify after the merger, whether it comes from Schwab’s Intelligent Portfolios, its other retail channels or something else.