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How Long Will the 'Massive' Schwab-TD Ameritrade Tie-Up Take?

By Jeff Berman

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Charles Schwab says its integration of TD Ameritrade is expected to take 18 to 36 months to complete, following the planned closing of its transaction on Tuesday. 

This timeline, disclosed late Wednesday after the Federal Reserve approved the $26 billion deal, means the technology tie-up and related efforts won’t be done until April 2022 at the earliest and by October 2023 at the latest.

Many industry veterans, though, believe the integration is so large and complex that the shorter schedule is unrealistic. Here’s why.

A ‘Massive Project’

“Look, this is a massive project. It will take time, and it will be done, presumably in phases,” said Joel Bruckenstein, head of Technology Tools for Today.

“You have the core custodial technologies and everything else,” he explained, adding: “Custodial technology at Schwab is strong, and advisors will be moving onto that platform.”

However, “there are a few gaps,” Bruckenstein said, pointing to the fact that, “for some inexplicable reason, Schwab does not allow a Roth option on their Solo 401(k) plans” — a situation several advisors have mentioned to him.

“Schwab will clean up these discrepancies in product and in technology,” he added, but other parts of the integration “will move at a different pace, depending on the priority.”

For example, “Clearly, options trading is important to many, so I would hope that is a priority; ditto for iRebal,” the technology expert said, referring to TD Ameritrade’s rebalancing tool.

Big Scope, Scale

Tim Welsh, head of the consultancy Nexus Strategy and a former Schwab executive, said: “I definitely think it’ll trend towards the longer end of that [18-36 month] spectrum … just because of the scope, scale and complexity involved.”

“You’re merging two very large companies, massive client bases, different technologies, different organizational structures. All of those things just take a long time to play out,” Welsh said. “The last thing you want to do is just ram [things] together and just have a very disjointed client experience.”

Yet, as the process drags on, moving slowly “just draws out more uncertainty,” Welsh said. Plus, the longer you take, the more questions get asked” by RIA and investor clients, who may be exploring options offered by other providers.

Regardless of how long the integration takes, Welsh noted some kinks will have to be worked out once the integrated platform launches and clients start using it — especially in light of the need of the system to handle massive trading traffic, Welsh said.

There have been several high-profile trading platform outages at TD Ameritrade and other firms this year that he blamed, at least in part, on an inability to handle high traffic. 

“No system integration ever goes smoothly” and, in this case, we may see “double the volume going through these pipes” to trade on the integrated Schwab-TD Ameritrade platform, Welsh said.

‘Huge’ Risks

“The risks are huge,” Doug Fritz, CEO and founder of F2 Strategy, said. “They’ll prepare as much as they can, but the impacts and bumps are definitely coming!” he predicted.

After all, trading systems – as well as all the other advisor tools that must “run at massive scale” – have been “built upon decades of code,” according to Fritz.

“There’s no way to avoid outages other than to have great project management and oversight,” he explained. “The best they can do is to have a great plan for dealing with them when they happen. It’s a cost of the merger that will be borne by their clients.”

As for the likely timetable, “Most of the back-end work will probably go first, which means we won’t see much happen on the outside until brands and systems start turning off. That will easily take 24-plus months to really start going.”

More Predictions

Craig Iskowitz, CEO and founder of management consultant Ezra Group, said he “would lean more towards 36 months to complete the integration to be safe,” adding that he did “not have any visibility or knowledge into the specific Schwab or TD Ameritrade systems.”

From Iskowitz’s experience dealing with large portfolio accounting systems and custodial systems, “a lot of the work is in data mapping exercises,” he explained. “Lining up the way TDA structures their data against how Schwab does it is a non-trivial process [and one] that must be 100% accurate.”

Thus, Schwab “will want to shut down the TDA custodian infrastructure … as soon as possible to start generating cost savings, but a misstep in the conversion would be a disaster,” the consultant said.

Offering a contrarian view, Wealth Consulting Partners President Gavin Spitzner said: “While from a technology and application standpoint, things will be phased and extend across multiple quarters, in terms of custodial conversion, I’d be very surprised if that extended much past 18 months, and I wouldn’t be shocked if they beat that date.”

Schwab has said since last November that it hoped to complete the merger’s approval process by year-end 2020, and it is now set to do so on Oct. 6. The pressure is on the firm to beat, or at least meet, expectations again. 

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Jeff Berman

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