Here's Why Schwab Continues to Lose TD Advisory Assets

In its latest monthly update, Charles Schwab said that assets previously held at TD Ameritrade continue to leave the firm.

Most of these deal-related outflows are tied to “Ameritrade RIA clients, including a select number of relationships that did not meet our criteria for an ongoing service relationship,” Chief Financial Officer Peter Crawford said early Friday.

In August, the firm’s core net new assets dropped 64% to $4.9 billion from $13.7 billion in July and decreased 89% from $43.3 billion a year ago.

Core net new assets, excluding flows originating in Ameritrade accounts, were $28.1 billion, the firm said. Asset flows from accounts originating solely at Schwab remain “robust,” according to Crawford, and are “up 15% year to date relative to the same period in 2022.”

In July, Schwab’s core net new assets fell 59% to $13.7 billion from June and 57% from a year ago. Total client assets were $8.24 trillion in July, up 3% from June and 13% from the year-ago period — similar to the 3% monthly jump and 13% 12-month uptick in the S&P 500. 

When it reported its July activity on Aug. 14, the Westlake, Texas-based company said it had lower net flows of client money due to the loss of some TD Ameritrade retail client assets that had recently migrated to Schwab and some advisory clients’ assets expected to do so over Labor Day weekend. 

The firm recently ended some custodial work earlier done by TD Ameritrade’s institutional business, which it found was “inconsistent with our approach to serving” RIAs, Crawford said in a statement in mid-August.

Schwab prefers not to work with part-time advisors, for instance, said Michael Wong, director of financial services equity research in North America for Morningstar Research Services, in an interview.

This attrition looks likely to continue for another 10 months. As Crawford stressed last month, it is expected “subside” only after “the completion of the final transition group [from TD Ameritrade] during the first half of 2024.” 

Schwab’s total attrition of assets tied to the deal is expected to represent about “4% of Ameritrade revenue prior to the deal or around 1% of combined total client assets as of Dec. 31, 2022,” according to the CFO last month. 

While it makes sense that a certain number of TD Ameritrade RIAs might want to move some assets away from Schwab in order to work with multiple custodians, “It’s a little disappointing that [Schwab's] net flows are lower than normal now, and that [the attrition] didn’t play out before  the final conversion dates,” said Wong.