Charles Schwab is getting back to basics—well, in as far as you can call investors with $50,000 to $2 million in assets “basics.” With its recently announced plans to sell U.S. Trust to Bank of America, the firm has decided to leave serving the uber-uber wealthy—that very top 0.5 percent of the population—to others. Chuck Schwab said as much on a conference call with analysts in mid-December.
But the firm isn’t giving up on trust services all together—it’s launching an in-house personal trustee capability in early 2007 and corporate-trust services in the year’s second half. Basically it’s betting that its own in-house and independent advisors can more profitably provide some of the higher-end estate-planning and trust services to the other 99.5 percent of the population—the so-called mid-tier millionaires.
This bet is most agreeable to registered independent advisors affiliated with Schwab—especially those who specialize in serving the wealthiest investors. “We like that we will no longer be worried about U.S. Trust poaching clients we refer for trustee services,” says Michael Kossman, chief operating officer of Kochis Fitz in San Francisco. Kossman is quick to point out that, in fact, U.S. Trust has never solicited one of his clients, but the potential was there and that made advisors nervous. “We appreciate that Schwab is setting up a friendly trustee that will not compete with us for asset management.”
Stay tuned as Schwab uses some of the cash from the sale (around $3.3 billion) to make an acquisition. Chuck has said the firm might consider something in the banking or 401(k) administration businesses.