It is a firm which has a quarter of the registered investment advisor market as part of its network but Charles Schwab is not resting on its laurels, as managers told this publication in San Francisco recently.

It is a firm which already has a quarter of the registered investment advisor market as part of its network but Charles Schwab is not resting on its laurels.

“The RIA space is growing…the largest RIAs and RIAs in general are growing. RIAs with Charles Schwab are growing faster than the sector as a whole,” Neesha Hathi, senior vice president, advisor technology solutions, Schwab Advisor Services, told this publication recently.

About half of Charles Schwab’s assets are for its advisor services business. CS wants to expand this segment and it is the fastest growing business of the brokerage and financial services giant, she said during an interview at her firm’s offices in San Francisco.

Hathi pointed out that the US firm has about 25 per cent of the custody market for RIAs, a function that underpins the industry. The role of custody, not often always well understood, is changing, she said. “Traditionally, custody was about the safety of assets. It is now much more about access to investment products, technology tools and reporting.”

One of Hathi’s proudest claims is that with Charles Schwab operating as it does, its platforms have enabled advisors to pass over time-consuming but vital administrative chores to Charles Schwab so they can focus on what they are supposed to do: give advice. Many small, independent firms that exist today do so thanks to such support, she said.

“80 to 90 per cent [of RIAs] will say if you can take that [back-office work] off my hands and have it as secure as being in my walls, then let’s do it,” she continued.

Program

As recounted here recently, Charles Schwab Advisor Services is investing in a long-term way in the advisory industry: by running free immersive consultation programs for advisors on strategic business issues. The latest topic to be added to the program was managing client profitability. The program series is inspired by the firm’s benchmarking study of the industry, which highlights advisors' business needs. The firm has moved from a knowledge-based approach – such as via white papers - to a focus on implementation at its advisor services arm, after perceiving that that’s what its clients were crying out for. The consulting program has been running for just over a year and a half; around 700 advisors have come through it so far, and it has taken place in 19 cities.

Family Wealth Report spoke to this firm a few days after it announced that net income for the third quarter of 2012 was $247 million, down 10 per cent from $275 million for the second quarter of 2012 but up 12 per cent from $220 million for the third quarter of 2011. Net income for the nine months ended September 30, 2012 was $717 million, up 2 per cent year-over-year. And it is striking to take stock of the figures of this financial titan: the New York-listed firm has more than 300 offices and 8.7 million active brokerage accounts, 1.5 million corporate retirement plan participants, 844,000 banking accounts, and $1.89 trillion in client assets.

Talking about strategy and tech

Hathi expanded on the theme of how the firm talks to RIAs about their strategy, an urgent requirement at a time when the industry is contending with the impact of increased regulation and more demanding client needs. “Some firms walking into our office meet us in a state of over-confidence…some will have a different point of view,” she said.  

“One of the silver linings of the financial crisis was that it was a wake-up call for this [RIA] industry. You can’t just assume you can add staff and grow more revenues. Rather, the question is how can you do more with the same or fewer people?”

Having been with Charles Schwab for more than eight years, Hathi, among other roles, chairs the firm’s technology operations and service advisory board. She talked about the work of this group.

“When we bring groups together, the challenges they mention are `How do I evaluate a vendor? How do I get a team to adopt a technology? Get different technologies to work with one another?’”

Hathi devoted some time to talking about the importance of technology and its uses in the RIA space. “Five, 10 years ago, there wasn’t much technology for RIAs. They were a hidden gem…. They used our website and data but really had only one application. What has happened is that there is a lot more technology available now,” she said.

Charles Schwab is launching a new offering in the winter - its Schwab Performance Technologies subsidiary’s offering, called Portfolio Center, a desk-top application, will be launched in a hosted version, she said.

At the start of October, Schwab Intelligent Technologies and Salentica announced today that Salentica Advisor Desk with Schwab OpenView Gateway had been made available to independent investment advisors after a successful pilot. And more recently, the firm said its semi-annual study of RIAs showed a mixture of “big-picture optimism with a strong shot of short-term pessimism mixed in.” (Schwab’s annual RIA Benchmarking Study captures trends and best practices in
the RIA industry based on the experiences of individual firms. This
year’s study represents the views of over 1,000
firms, a 25 percent increase from a year ago. The firms participating
manage more than $425 billion in combined assets, with 105 of those
firms managing $1 billion or more. The median participating firm has 186
clients, $212 million in AUM and $1.3 million
in annual revenue.)

One way or the other, this very busy firm is unlikely to pause for breath any time soon. Charles Schwab’s work in the RIA space looks set to intensify.