Charles Schwab Institutional says it has developed billions of dollars of assets under custody and accumulated intermediary fees by referring affluent customers to independent advisers.
The San Francisco unit of Charles Schwab Corp. said it has added $14.6 billion of assets under custody in three years by referring 50,000 investors through a program called Schwab Advisor Network. Edie Heilman, a senior vice president at Schwab Institutional who runs the network, said it added $1.7 billion in the first quarter, 5% better than the year earlier. The adviser network, which was started in April 2002, added $6.4 billion of custodied assets last year.
“As the program matures and it becomes more familiar for our financial consultants and they get to know the independent advisers in the market, they will have an easier time identifying the right client and the right adviser for that client. I am optimistic,” Ms. Heilman said.
The program helps Schwab keep customers and their assets, she said, even as their growing wealth prompts a desire for independent adviser service. “These assets are still custodied at Schwab,” she said. “We want to assure that Schwab isn’t at risk of having money move away to another provider.”
In addition to keeping assets under custody, Schwab charges a 15% management fee on the fees the 330 advisers in the network collect on referred assets. Each adviser must have at least $50 million of assets under management to participate in the program.
Analysts said most large brokerage firms, particularly those with custody services, are creating some type of referral system to help maintain assets that might otherwise move to a registered investment adviser.
“A smart custodian can see the writing on the walls, and they have to find a way to keep their customers, or at least keep their customers’ assets,” said Burton Greenwald, a Philadelphia analyst. “As investors grow their wealth, they need services and products that some of these brokerage firms cannot offer.”
The similar referral programs at Fidelity and TD Waterhouse are much smaller and newer than Schwab’s, Ms. Heilman said. “TD Waterhouse just came up with a look-alike program to ours. It has the same fee structure. We are flattered that firms are following in our footsteps. We know we have the right formula when other firms try to replicate it.”
Fidelity Advisor Access, started in 2002, has attracted $2.5 billion through its 150 advisers. TD Waterhouse did not respond to a request for comment.
Ms. Heilman, who was promoted in 2003 to run Schwab Advisor Network from a post as senior vice president of its active-trader services, said the company has been in the referral business for 10 years. In the 1990s it had a “casual referral program” called Schwab Advisor Source in which consultants would give an investor the names of as many as three advisers. This program amassed $11 billion of assets under custody in seven years.
Schwab started the network because the potential for clients to sign up with advisers was not being realized, she said. When the network was begun, financial consultants were given four to 10 advisers in a region with specific skills, instead of a list of advisers. The consultant would then link each customer to a specific adviser. This “helps eliminate the indecision,” she said. “This change has taken the conversion rate from 28% to 40%.”
Ms. Heilman said the referral network is crucial as the ranks of registered investment advisers grow quickly.
