TD-Schwab Merger Lessons

Matt Reiner

Author

Later this year, discount brokerage behemoth Charles Schwab is expected to consummate a $236-billion-dollar acquisition of rival giant TD Ameritrade. As with any transformative change, the November announcement of this TD-Schwab merger prompted the full-range reactions, including an anti-trust suit filed by an RIA concerned about reduced competition and innovation in the sector.

While this deal may be hard for some people to accept in the moment, the Schwab-TD Ameritrade deal will be a huge net positive for everyone affected – the two companies, the financial planners who do business with them, and consumers. What’s more, this coming-together offers useful lessons for the entire financial advisory industry as we seek to navigate a relentlessly changing present and future business environment.

Size is the obvious first benefit of the Schwab-TD merger. When revenue streams are under pressure, scaling the business and increasing operating efficiencies is an excellent way to protect margins. With the recent competition-induced elimination of trading fees by Schwab, TD Ameritrade, and their major competitors, revenue is indeed under pressure. The combined Schwab-TD will serve some 24 million clients – 13 million from Schwab, 11 million from TD Ameritrade. Every member of that gigantic client pool will help the new firm generate revenue in one way or another, including investment of unplaced client cash, payment for flow, and fees for investment advice. The combined company’s reinforced margins will allow it to continue to foster innovation and better serve advisors.

While every merger provides potential operating efficiencies through the combination of operations and staff reductions, this combination offers a unique opportunity to improve the organization and bolster margins. These two firms bring different and highly complementary strengths to the merger altar.

TD Ameritrade is a leading user and supporter of financial technology. Its VEO Open Access is integrated with a larger number of small financial advisory firms and connects to roughly 180 fintech providers using API integrations. In 2018, TD offered a $100,000 prize for the best fintech innovation and opened the competition to developers outside the industry.

Schwab, on the other hand, is known for its commitment to attentive customer service. This rave is typical:  “Our team at Capital Investment Advisors works with the Schwab service team on a daily basis to effectively and efficiently address the needs of our clients. The wonderful partnership and rapport that our operations team has developed over the years with the Schwab team allows us to be more agile, and ultimately expands our ability to serve our clients.”

This powerful combination of tech and great service will help Schwab scale their business in a human-centric way with less time spent on menial tasks and more time for what Schwab-trained professionals do best: creating and nurturing deep relationships with clients and prospects.

The market changes and competitive challenges that lead to the Schwab-TD Ameritrade merger are, to borrow a self-description from a certain Marvel villain, “Inevitable.”  Every financial advisory firm faces them today and will confront more tomorrow. Fortunately, merging isn’t the only way to gain the advantages the combined Schwab-TD Ameritrade should possess.

Carefully selected and implemented technology and systems innovations can help firms of any size scale their business while protecting their margins. This is especially true when that technology stack is hubbed by an Artificial Intelligence (AI) Assistant. As Schwab and TD Ameritrade clearly understand, technology that supports great customer service is a game-changer in the fight against margin compression. With the AI handling everything from client meeting scheduling, to providing routine document access, to portfolio balancing, advisors and other team members can focus on the all-important human element of the business. Tech-supported advisors have more time to super-serve clients and build the kind of bonds that require face time and deep familiarity. Equally important, those advisors can invest more time and effort in the networking and prospecting necessary to grow the business.

And, thanks to the administrative efficiencies created by AI-coordinated tech, the firm can handle a surge of new clients with minimal (if any) staff additions.

The Schwab-TD Ameritrade merger is scheduled to close later this year. Other financial advisory firms should take a lesson from these behemoths by making 2020 the year in which they too scale their businesses by leveraging technology to make the most of their people.

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