Do Schwab’s New HNW Services Threaten Advisors?

On the heels of Charles Schwab’s announcement Monday that it’s now automatically enrolling retail clients with more than $1 million in assets at the firm into Schwab Private Client Services, and those with $10 million and up in Schwab Private Wealth Services, industry experts seem deeply divided on the impact this move will have on financial advisors doing business with Schwab.

When asked if advisors should view the move to give these high-net-worth and ultra-high-net-worth clients free access to a dedicated Schwab consultant as advisor-friendly or threatening, Pirker Partners CEO Alois Pirker responded: “It’s a great question. The way I look at it, it really is [as] … a natural progression of where Schwab is coming from and how their clients have been engaging with them. And, hence, it makes perfect sense for that [wealthy] demographic.”

Will Schwab be moving to match what the wirehouse firms or RIAs do for their wealthy clients? “No, they’re coming from a very particular angle at this [retail] account demographic, and clients that were online-brokerage focused in the past might like it better than the full-service model, where they feel disintermediated from their assets,” Pirker said.

But Mark Tibergien, of Mark Tibergien Insights, disagrees: “The downside is that [Schwab’s] emphasis on retail continues to present a competitive threat to the advisory firms that use them, because it potentially confuses the market.”

Tibergien, the former head of BNY Mellon’s Pershing Advisor Solutions, added: “For the most part, RIAs have been indifferent to the competing messages, but the more that Schwab’s brokerage business looks and feels like their advisory client’s unique proposition, the more it will compel those RIAs to look for alternative or additional custodians.”

What’s at Stake?

Schwab’s total client assets were $7.65 trillion as of May 31, up 5% from May 2022 and flat compared to April 2023. About $3.38 trillion of these assets were in the firm’s investment advisor business, Advisor Services, and some $4.27 trillion were in Schwab’s retail business, Investor Services, including $326 billion of assets held by DIY clients receiving ongoing advisory services.

But as the firm pointed out earlier this week, the HNW and UHNW client segments have grown to represent more than two-thirds of its total retail client assets. Clients with more than $1 million at Schwab have expanded more than 10% annually over the last five years, while clients with more than $10 million at the firm are growing at a rate of nearly 20%.

In terms of Schwab’s two key rivals, Vanguard offers wealth management services, including a dedicated financial advisor and a wealth management team, for clients with at least $5 million, and flagship services for those with $1 million to $5 million. Fidelity offers private wealth management for those with at least $10 million in total investable assets.

“The HNW-investor waters are where everyone is fishing now,” said Rob Farmer, a former Schwab executive who is now managing director and head of communications at The Rudin Group. “These clients are attractive for many obvious reasons but they also require additional care, and without it could swim elsewhere.”

Schwab’s recent packaging of the client experience for its HNW and UHNW clients is likely focused equally on improving the “stickiness of current assets [and] attracting new clients,” he said.

“Schwab does not compete for clients of their advisors, but it’s fair to say they are potentially competing for the same prospects — especially with this new [offering] that ventures into a similar value [proposition] that has long been a hallmark of independent advisors,” Farmer added.

Upscale Retail

Beyond the issue of Schwab possibly adding to the list of competitive threats for its RIA clients, “Overlooked is the fact that even largely self-directed investors expect a higher level of service, responsiveness, exception accommodation and dedicated relationship management when they have substantial assets at an investment services firm,” said Chip Roame, head of Tiburon Strategic Advisors.