Schwab Reviewing Advisor Network Referral Fees

The participation fee, according to the document, is calculated as a percentage of the assets in referred clients’ accounts that are maintained in custody at Schwab.

The fee is set according to a sliding scale that charges 25 basis points for the first $2 million in referred assets, 20 basis points on the next $3 million, 15 basis points on the next $5 million and 15 basis points on assets above $10 million.

Advisors also must pay a one-time “program transfer fee” if referred assets are subsequently moved out of custody on Schwab’s platform.

A ‘Reasonable’ Action

Roame further noted that additional lead generation sources like SmartAsset, Zoe Financial, NerdWallet and Datalign account for another 20% or so of independent advisors’ incoming business — meaning these two referral sources are “hugely important.”

“The other two substantial wealth management marketing and lead generation methods (e.g., digital marketing and workplace strategies) are difficult areas for independent advisors to compete with the bigger firms,” Roame explained.

“Schwab and other custodians have a huge opportunity cost in referring away these leads and should be paid accordingly,” he noted.

Roame also pointed to another important factor in Schwab’s fee calculations: “[Their] reputation is being evaluated with every referral, and as Schwab (and other firms) have built up their advice offerings, some of those leads would be well served by employee advisors too — a business with likely higher margins.”

All-in, Roame argued, the reassessment “feels reasonable,” though exactly where advisor participation costs land is anyone’s guess at this point.

Credit: Bloomberg