Charles Schwab’s advisor services division is launching a membership program in July in a move that looks to capture more business, and long-term stickiness, from the next generation of independent registered investment advisors.
Schwab Advisor Services announced on Tuesday that it is expanding its custodial and advisor business with Schwab Advisor ProDirect, a membership program targeting advisors who want to break away from captive models and launch their own RIAs. Schwab leaders said the program targets RIAs in the $50 million to $300 million range, but beyond asset size, is focused on growth-oriented RIAs with a “coachable” mindset.
“We know that there are many advisors in the traditional captive or broker/dealer models out there that would love to go independent,” Brad Losson, head of enterprise solutions at Schwab Advisor Services, said on a call with reporters. “We are trying to fill a need for advisors who want to go independent, or are struggling to find a way, both by easing the complexity burden of establishing a business and realizing their growth opportunities within the RIA community.”
Losson said ProDirect is “additive” to the firm’s core onboarding and custody services, which will not change and will continue to offer no AUM minimums or custody fees, according to the firm.
Membership for ProDirect will cost $5,250 per quarter, or $21,000 annually, with a one-year initial membership that is then renewable quarterly thereafter.
Executives on the call said the membership services fell into four areas: helping RIAs launch; providing coaching and educational resources, including dedicated business consultants; curated products from third-party vendors with potential discounts; and ongoing access to Schwab research and training.
The Westlake, Texas-based Schwab makes the move as the RIA space continues to grow, both on the top end, helped by private equity funding, and among smaller firms, with breakaway advisors starting their practices. Numerous platforms and providers are also focused on providing resources to independent RIAs, including some that focus on breakaways.
Dynasty Financial Partners, for example, was launched in 2010 with a focus on breakaway advisors and now has $105 billion in platform assets across 57 network firms. XY Planning Network, a fee-only advisor member platform launched in 2014 by Michael Kitces and Alan Moore, has successfully targeted upstart RIAs through its $520-a-month base subscription model. This March, it said membership has risen to more than 2,000 advisors.
“There are some needs in the marketplace that are being met, but we have an opportunity to serve those needs even better,” Losson said.
ProDirect is for RIAs with their own Form ADV seeking to build and grow their practice over time, said Shawnette Gauer, managing director of enterprise solutions at Schwab Advisor Services.
The program is designed for the “advisor that is fiercely independent,” Gauer said. “They want their own business. They want to build a firm that has enterprise value. They want to build a legacy for their clients and for their families and for this business that they are creating.”
She likened the approach to using a gym. A person can work out independently to limited success, or pay for a personal trainer to provide customized coaching and accountability.
Losson said the membership cost is not meant to be a major “new revenue line for Schwab.” Rather, the fee will contribute to further investment in the program and ensure that advisors who sign up are committed to using it.
To help develop the program, Losson said the team spoke with advisors who had recently gone independent to see what they wished they’d had to help them and discuss reasonable pricing.
“We know there are tons of mergers and acquisitions on the top end” of the RIA space, Losson said. “But there is also huge force generation on the lower end of the market, and we want to help accelerate that.”