Last-Minute Steps for TD Advisors as Schwab Integration Closes In

Q&A August 24, 2023 at 02:14 PM
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With little time to go before TD Ameritrade advisors and their clients' accounts move to the Charles Schwab platform, F2 Strategy CEO Doug Fritz told ThinkAdvisor that, although it's late in the game, there are still some steps that advisors can take to prepare for the integration.

During an online interview on Tuesday, Fritz also discussed why he decided it was time to hand over the role of president to someone from outside the wealth management technology services firm.

Other topics he discussed included F2's growth plan and its recent relocation from San Francisco to Chicago and acquisition of consulting and services provider Oakbrook Solutions.

Below are Fritz's responses to ThinkAdvisor questions during the interview, edited for length.

THINKADVISOR: At this point, is there anything left that Schwab or TD Ameritrade advisors should be doing ahead of the Labor Day weekend integration?

DOUG FRITZ: It's not that it's too late but we've been signaling since the beginning of this year … trying to get out in the press, the media, as much as possible, all of the many steps that responsible firms should have been doing up to this point around confirming with your other vendors that they're ready to make the switch.

People are thinking it's just a Schwab and a TD thing. But if [you've been] using Orion or Black Diamond or another software vendor to plug into TD … you've got to get confirmation that's [going to] work.

And, to the best of our knowledge and all of our clients, all of F2′s clients that have TD as a custodian, we've covered that. But we've been trying to jump up and down and just point to folks in the industry and say, "Hey, you need to do your homework here; you need to get ready for the switch."

There's client communication that has to happen … I know Schwab has a bad reputation. People love to knock on Schwab but, frankly, Schwab's done a pretty good job in at least publishing and putting out the content that their clients need to pay attention to. Our estimation is that there's a significant percentage of the TD clients that haven't paid attention to that.

How do you think the integration will go and why?

We're not predicting any kind of major hiccup because Schwab is staffing it well. It's well organized. We know the machinery of the account conversions are going to go as well as they can go. There will always be hiccups and bumps. You can't have a merger of this size and a conversion without some problems.

But, from everything we've seen, Schwab's done all the right stuff up until now. That doesn't mean they're not going to have a bad day over the Labor Day weekend. But they've done the right stuff.

We're worried that people haven't been paying enough attention to it and that it's going to make Schwab look bad. But really you should've done your homework.

So, at this point, [a little over] a week before the conversion, if you are a TD client, we'll keep saying it: Know who your account rep is. Know who you're going to talk to on Tuesday… Call them before that [so] they know who the hell you are.

Ask them: "What should I have done?"… Review the documentation that's sent to you by Schwab. Make sure that you've checked all the boxes and you've double-, triple-checked that.

Make sure that your team is aware. Make sure that, if things go bump in the night, like if your system or your accounts don't load, if you see a problem, if you see an issue, that you know who to call in those cases. The wrong time to prepare for a problem is when you're in the middle of the problem.

Just have your house in order before that happens. And that's our hope: that people have done that work and that they've communicated to their clients that it's happening. That they know that on Tuesday, when they all get back to the office, they know what's going to change. That they know that they're going to be sending things to a different place.

Is there anything that the advisor should be worried about at this point with the integration over Labor Day weekend?

Know who to call.

There's a concept that we use called a pre-mortem. …

Think about the conversion. Sit with your top two to five executive team members … and think, "What could go wrong? How would we know it went wrong? And what would we do about it?" And have the top five answers.

If they haven't read the documentation, then get off your butt and read it through. Make sure someone in your organization is accountable for it, [that] you've got someone deputized to know all the ins and outs of the details … Make sure that information is documented somewhere just in case that person's out sick or something terrible happens.

Schwab recently talked about the attrition of some retail and advisory clients assets during the integration. What's your take on the attrition that it's seeing? Was it to be expected?

I'm surprised we haven't seen more… I thought the fact that we haven't seen more attrition, especially given that TD got acquired by Schwab [and] the philosophical and just like almost religious differences in terms of those two firms.

The fact that we've only seen a little bit tells us two things. One, there isn't such a competitive offering outside of TD and Schwab that someone would flock to it. And, two, that the cost of changing, [in terms of] the labor, client experience, risk costs of switching custodians is so high.

We always knew it was high. No one wants to change custodians. It's an absolute last-ditch, terrible thing to have to do voluntarily. The cost of switching to [another custodian] was so high that the vast majority of TD clients decided to stay put and work with Schwab.

That's a huge tell. And that's a tell that, I think, for the next 10 years, we'll be referencing back to that as newer custodians come to market. We had a huge reason to leave before the conversion and very few people did.

The ones that did leave, that we're seeing leave, they were at TD for a billion [dollars] in assets and they were LPL shops that were using TD as their RIA custodian. LPL is going to win some of that business back, which is good for LPL. And LPL is investing a ton of money in technology and they're doing a phenomenal job.

What's most significant about F2 hiring Laura Korbel as president?

For F2 and our clients, this is one of those indications of what a growing, but responsibly growing, management consulting firm does.

[F2 is] focused on delivering more to our current clients and being more valuable every year that we're in existence. We go deeper, we offer more, we're able to provide more services and be more of a resource for our clients.

Having a president that can come in and help us to align our teams, align delivery from the combined Oakbrook and F2 teams, where Oakbrook [provides] a phenomenal access to experts that sort of are in one area of the market and that two experts are then in sort of a similar but slightly different version of the market.

Bringing those two firms together [has made F2] double the size. And, with the amount of the industry spending on wealth technology, we continue to grow and grow and grow.

It was very important to me personally that we have a professional president to operate the company to scale. I see too many firms, especially founder-led firms, where their growth starts to hinder the experience of their clients because they're kind of trying to grow but in the same model that they were founded in, in the same top-down hierarchical structures, and it doesn't work.

And so, when we looked at where we're going as a firm, and we looked at, most importantly, the experience that we wanted our clients to have, the number one thing post-acquisition of Oakbrook, was we need a dedicated management team that will help us to scale our services. And Laura is a scalability genius.

Why did F2 decide to hire a new president?

Funny thing. When [I started the] company, I was CEO, president, head of sales, I watered the plant. I still actually water the plant. I was the guy that set up people's email addresses … My list of duties was massive. And so we hired experts. We hired project managers and analysts and digital experts, data architecture experts. All these experts.

Laura [will be] managing the staff, organizing the resources, overseeing the allocation of which person gets on what project and what time on that project. I was doing that for a period of time.

And so she takes on the president role from me … I run the company but now I have someone whose whole job, whose whole career has been, at accelerated levels, driving and leading much bigger companies than we are right now but aspirationally designed for what we want to become, to high levels of scalability, efficiency and profitability.

What are the main reasons why you selected her as president?

We interviewed people that had worked with her in the past. We did our due diligence on her background. She had the reputation of being a phenomenally reliable employee and client-focused leader and her attention to detail around building methods of operating as firms to enable scale was off the charts.

She came incredibly highly recommended in all the areas that we're looking to achieve: staff organization, scalable delivery and preparation for growth. Those are the three areas that she [was] highly qualified in. I would say the other reason why Laura [was chosen is] she's also based here in Chicago, which is where we just relocated the firm to.

We're still a dispersed workforce. The vast majority of us work from home. But, as we grow from 70 employees to 150 to 300 employees in the foreseeable future, having a base of operations here locally in the Chicago area is important to us as well. We have our eyes on growing up to 300 employees.

By when do you think that would be?

I would say over the next five years, we would reasonably expect to be three times the size we are now.

And the size you are now is what? How many people?

We're 70 full-time employees.

What was the reason why you decided to move to Chicago from San Francisco?

A central location. [It's] far closer centrally to our clients. Being in California is awesome. Weather, surfing. Can't beat it. But it's incredibly far from Boston and Miami and New York and Washington, D.C., and Chicago.

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