Charles Schwab reported a 34 percent drop in its third quarter earnings today, the firm’s third consecutive quarter of slowing earnings this year. On a good note, Schwab continues to gather new registered investment advisor firms and assets to its platform.
The firm reported $1.01 billion in revenues for the quarter, down 19 percent from $1.01 billion in the third quarter of last year, as money market fund fees declined 24 percent mainly due to $78 million in waived fees to attract new clients. Net income was $200 million, down from $304 billion in the third quarter of last year.
Schwab now manages $1.4 trillion in client assets. The firm brought in $20 billion in net new client assets, up 15 percent from the second quarter, but an 18 percent decline from the year-ago period. Schwab Institutional, the firm’s RIA custodian, was responsible for $11 billion of those assets, up 44 percent from the second quarter, but down 21 percent from the year-ago period. Nearly 85 percent of these assets came in from new clients.
Meanwhile Schwab’s recruiting of breakaway brokers from wirehouses, independent b/ds, and other firms remains strong. In the third quarter, 52 advisor teams went independent with Schwab, a 30 percent increase over the same period in 2008, a 44 percent increase from the previous quarter this year, and a 37 percent increase from the first quarter of this year. The firm also posted some gaudy recruiting numbers for the month of September, with a record-breaking 25 advisor teams representing some $2 billion in assets under management joining the custodian. In all, 126 teams have joined Schwab year to date, through September 30, 2009.
Barnaby Grist, head of strategic business development for Schwab Advisor Services, says that recruiting growth is only just beginning. “We start with a bigger number but they’re [competitors] are growing too. I think the big story is that we’re only just starting to scratch the surface of the wirehouses. We talk about the number of teams we helped move in the hundreds, wirehouses think in the tens of thousands,” says Grist.
Schwab is leading the pack, but other custodians are also posting stellar recruiting numbers of breakaway advisors choosing the independent fee-based RIA model. Through September 30, Fidelity's Institutional Wealth Services (IWS) has added 110 breakaway teams with $6.5 billion in assets. In the first six months of this year, Pershing and its Pershing Advisor Solutions (the RIA custodial affiliate of Pershing) transitioned 12 wirehouse teams to its platform accounting for $1.2 billion in assets, with four other teams with $1.5 billion in assets currently in the process of joining. Meanwhile, for the month of September, 17 advisor teams joined TD Ameritrade Institutional.
As the recruiting battle remains at all time highs, so does the custodians’ race to incent breakaways. One current trend: Custodians are slashing prices like Wal-Mart, discounting fees and cutting prices to dampen the increased financial pressure felt by its registered investment advisors. In September Fidelity announced it was reducing prices and waiving fees on assets custodied with the firm effective the first of this month on any new money that RIAs bring to IWS; some cuts would go through 2011 and other waived fees would last until June 30, 2010. Mike Derbin, president of Fidelity Institutional Wealth Services, says breakaways are attracted to the firm’s technology offering through its Wealth Central platform, soby discounting 10 to 35 percent on the annual service fees for the Oracle Customer Relationship Management (CRM) system and up to a 50 percent reduction on licensing expense of portfolio management software procured through Advent is a “meaningful out of pocket start up expense on some of these core technology capabilities. The fact that we’re able to offer them a price break for a longer period of time has been deemed as quite valuable,” Derbin says.
Meanwhile, in June, Schwab introduced a series of initiatives to save its RIAs money, such as waiving commissions on electronic equity trades and reimbursing account transfer fees for its RIAs’ clients. Other custodians are enhancing technology offerings to lure advisors. T.D. Ameritrade, for example, rolled out a web-based tool in September, which allows advisors to compare business models, estimate expenses, identify their motivations and strengths and ultimately design a customized action plan to ease the transition to independence.
Barnaby Grist, head of strategic business development for Schwab Advisor Services, says that recruiting growth is only just beginning. “We start with a bigger number but they’re [competitors] are growing too. I think the big story is that we’re only just starting to scratch the surface of the wirehouses. We talk about the number of teams we helped move in the hundreds, wirehouses think in the tens of thousands,” says Grist.
Schwab is leading the pack, but other custodians are also posting stellar recruiting numbers of breakaway advisors choosing the independent fee-based RIA model. Through September 30, Fidelity's Institutional Wealth Services (IWS) has added 110 breakaway teams with $6.5 billion in assets. In the first six months of this year, Pershing and its Pershing Advisor Solutions (the RIA custodial affiliate of Pershing) transitioned 12 wirehouse teams to its platform accounting for $1.2 billion in assets, with four other teams with $1.5 billion in assets currently in the process of joining. Meanwhile, for the month of September, 17 advisor teams joined TD Ameritrade Institutional.
As the recruiting battle remains at all time highs, so does the custodians’ race to incent breakaways. One current trend: Custodians are slashing prices like Wal-Mart, discounting fees and cutting prices to dampen the increased financial pressure felt by its registered investment advisors. In September Fidelity announced it was reducing prices and waiving fees on assets custodied with the firm effective the first of this month on any new money that RIAs bring to IWS; some cuts would go through 2011 and other waived fees would last until June 30, 2010. Mike Derbin, president of Fidelity Institutional Wealth Services, says breakaways are attracted to the firm’s technology offering through its Wealth Central platform, soby discounting 10 to 35 percent on the annual service fees for the Oracle Customer Relationship Management (CRM) system and up to a 50 percent reduction on licensing expense of portfolio management software procured through Advent is a “meaningful out of pocket start up expense on some of these core technology capabilities. The fact that we’re able to offer them a price break for a longer period of time has been deemed as quite valuable,” Derbin says.
Meanwhile, in June, Schwab introduced a series of initiatives to save its RIAs money, such as waiving commissions on electronic equity trades and reimbursing account transfer fees for its RIAs’ clients. Other custodians are enhancing technology offerings to lure advisors. T.D. Ameritrade, for example, rolled out a web-based tool in September, which allows advisors to compare business models, estimate expenses, identify their motivations and strengths and ultimately design a customized action plan to ease the transition to independence.
