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Charles Schwab received lots of good news last week, with the Justice Department and shareholders approving its $26 billion merger with rival TD Ameritrade.
The firms, which collectively work with more than 10,000 RIAs and $5 trillion, should come together by year-end. The technology and related integration, though, requires 18 to 36 months.
The industry was "pretty much expecting this outcome, so it's not a big surprise to anyone," said Tim Welsh, head of the consultancy Nexus Strategy.
"However, it does remove uncertainty, so we expect to see RIAs affiliated with TD Ameritrade ramp up their search and inquiries for a new custodian, particularly smaller firms who fear a lower service level and less personalized support at the combined Goliath," explained Welsh, a Schwab veteran himself.
But what impact could the huge deal have on advisors and other industry players over the next year or two — and beyond? As the merger moves ahead, executives and industry watchers gave their "big takeaways" on its significance.
'Evolving Marketplace'
Most midsize and large RIAs will likely move to Schwab from TD Ameritrade, with others likely to go elsewhere, according to Joel Bruckenstein, head of Technology Tools for Today, or T3.
Custodians have a hard time making a profit through services provided to RIAs with around $100 million or less in client assets, given low interest rates and zero commissions, Bruckenstein and others say.
"But what you see in this industry is that a vacuum usually gets filled," the industry veteran said in an interview.
Interactive Brokers, Shareholder Services Group and TradePMR, for instance, are "beefing up" their offerings, he pointed out.
"And LPL Financial should get into the RIA space in a big way," Bruckenstein explained, adding that newcomer Altruist is also moving to capture part of the business.
Has Schwab won the war within the RIA industry? "It's an evolving marketplace, and it's too soon to tell. Changing attitudes at firms and technology innovation will influence this," he said.
"All custodians are saying their pipelines are full, and they are happy," Bruckenstein added. "I do think Schwab can convert the vast majority of the business [from TD Ameritrade]."
The 'Upsides'
Since the Schwabitrade deal was announced in November, antitrust concerns have been raised by advisors and others. But, as Bruckenstein and others point out, there's been more activity from small players, too.
"This is ultimately good for most RIAs," said Chip Roame, head of Tiburon Strategic Advisors.
"Sure, many pundits will simply say that Schwab will eliminate TD Ameritrade as a custodian competitor," Roame explained, "but I have a few problems with that simple conclusion."
Schwab is "an innovative company," the consultant says, meaning that it likely will roll out more products and services.
