The Deal Hasn’t Closed, But Schwab Is Already Dissecting TD Ameritrade

Changes at TD Ameritrade began shortly after the Department of Justice approved the acquisition.

Christopher Dilts/Bloomberg

Christopher Dilts/Bloomberg

Charles Schwab’s acquisition of rival brokerage TD Ameritrade has not closed. But since the Department of Justice approved the deal in June, changes have been underway.

In July, Dani Fava, the director of Institutional Innovation at TD Ameritrade Institutional (the company’s custody business), left to become the head of Strategic Development at Envestnet, the industry’s largest TAMP, or turnkey asset management platform. This week, Skip Schweiss, the president of TD Ameritrade Institutional, said he was also leaving.

Schwab announced more changes Wednesday, its first public statements about any specific parts of the rival it intends to keep, and a sign that the dissection of TD Ameritrade is already underway.

The brokerage, and custodian to more than 7,500 RIAs, announced it plans to keep TD Ameritrade’s thinkorswim and thinkpipes trading platforms and integrate them into its own offerings for retail and independent advisor clients after the acquisition. The thinkorswim platform is a trading platform akin to others, a customizable suite of market analysis tools for traders. The thinkpipes platform helps investors execute trades in different ways, such as placing block trades and allocating to multiple accounts, or using the platform’s algorithmic tools.

Both platforms also include educational content and assistance from service professionals, for example, to help investors identify and implement trading strategies.

The adoption of the platforms will not result in any changes to Schwab’s own StreetSmart Edge platforms, only enhancement them, according to Schwab.

“Our plan to adopt the thinkorswim suite of products and educational resources reflects its status as one of the strongest retail active trader platforms in the industry,” Barry Metzger, senior vice president of Trading Services at Charles Schwab, said in a statement.

In Wednesday’s announcement, Schwab also said it plans to retain TD Ameritrade Institutional’s popular portfolio rebalancing tool called iRebal and fold it into its offering for independent RIAs.

Schwab has said its own technology and platforms will be the most efficient way to realize the strategic synergies of the deal. The buyer says it is continuing to evaluate parts of TD Ameritrade to combine with. (Schwab also recently acquired the remains of Motif, a portfolio management company that suddenly closed this spring.)

“We are committed to leveraging material advantages in TD Ameritrade’s platforms when doing so enables us to deliver a differentiated experience to all of our clients. That commitment drove these decisions,” Jason Clague, the executive vice president of Schwab’s Integration Management Office, said in a statement about thinkorswim, thinkpipes, and iRebal.

“These decisions demonstrate Schwab’s dedication to continually innovating and enhancing the experience for our clients. We will keep clients informed as plans take shape and the integration process unfolds in the months ahead.”

Integration of the two companies is expected to take 18 to 36 months.

The $26 billion deal is expected to close before 2021, at which point Schwab will be a step closer to having over $5 trillion in assets and being a custodian to nearly 15,000 RIAs. (Schwab stockholders approved the acquisition during a special meeting the same day the DOJ approved the deal.)

The largest custodians — and especially the combination of Schwab and TD Ameritrade — are an “oligopoly” with over 50% of all RIA assets, and are using their scale to widen a competitive moat between themselves and everyone else, at least according to one research analyst.

Although, since they eliminated commissions to trade stocks and exchange-traded funds last year, their dependence on interest income has only increased, making scale evermore important to them. With about 60% its revenue tied to interest rates at the end of 2019, the world Schwab was thriving in effectively disappeared in March when the Federal Open Market Committee met and lowered the target federal-funds rate to between zero and 25 basis points.