The first $1 trillion RIA is coming, according to Bernie Clark, outgoing head of Schwab Advisor Services.
During a presentation at Schwab's inaugural Institutional Investor Day, Clark said the benchmark may not be reached “tomorrow.” However, it would be too soon, especially with the continued consolidation in the space.
Last week, Clark announced that he was leaving from his role as head of Schwab Advisory Services on June 28 and moving into an advisory role within the company. He has been with Schwab for 25 years, 15 of which have been as head custodian.
Schwab's RIA custody division currently has $4.3 trillion in total client assets, including $53 billion in net new underlying assets in 2024; the unit accounted for 24% of Schwab's total revenue in the first quarter.
According to Clark, the number of advisers joining firms rather than starting their own RIAs was growing rapidly. By joining existing businesses, these firms receive “essentially free infrastructure,” similar to the independent broker/dealer model. But IBDs will be even more challenged in the future, providing an opportunity for RIAs to attract new advisors.
In 2018, the percentage of “advisors in transition” assets that were 'mergers' versus 'startups' was 14% and 86%, respectively, according to Schwab data. In 2019, the gap narrowed to 25% vs. 75%, respectively, and in 2023, it stood at 44% of mergers vs. 56% of startups.
The top source of transition advisors in 2023 was IBDs, at 63%, followed by wire offices at 24%. Clark cited Dynasty Financial, Mariner Wealth Advisors, Mercer Global Advisors and Hightower as some of the players in the space that are helping advisors become independent.
“We expect the mergers to continue,” he said. “We are strong advocates for sustained independence.”
Clark will be replaced by Jon Beatty, currently chief operating officer for Schwab Advisory Services. Tom Bradley, a managing director at the custodian, will become chief client officer and report to Beatty.
When asked about his thoughts on private equity investors starting to exit their deals typically five to six years in, Clark said PE capital had “been additive to the industry,” citing Goldman Sachs' acquisition of United Capital and the subsequent return to independent space as an example of the “stabilizing” force of capital. (Former United Capital CEO Joe Duran was less complimentary about PE's impact during a discussion at Wealth Management EDGE last week.)
Beatty recalls recently speaking with the head of a “major enterprise leader” in the RIA space. While PE money typically lasted several years, this leader told Beatty how he could “string” three or four deals together, back-to-back, “and make it a 20-year event,” according to Beatty.
“There are a lot of extremely independent advisers out there who want to be private and hold that position,” Beatty said. “It's interesting to see minority players coming into the market and how they're supplying that capital without having to take a majority stake in the firm, and we think that's healthy as well.”
Clark and Beatty both mentioned Schwab's conversion of TD Ameritrade, with Clark calling it “technically perfect,” but not without its distractions.
Beatty said there was “a little bit of a pause” among the breakaway advisers around the integration date in the middle of last year, with Beatty saying the advisers wanted Schwab to complete their transition before they did theirs. With a solid first quarter, Beatty believed Schwab's business development “looks good” for the rest of the year.
Bradley found that while electronic house reps were increasingly signing up as a way to keep up with the expanding RIA space, there are still individuals “who want to break away from the 'Mother Wirehouse'” and build equity with stores theirs, he said.
“So I think that, although you've seen them expand their capabilities, in the end, that's going to continue to increase the pot of potential divisions that come to complete independence with us,” he said.