Bernard Clark’s Trips to Washington D.C. and Schwab’s Place in All of Finance

As one of the wealth management industry’s most popular conferences wrapped up Thursday morning and executives made their way to the Miami airport, Bernard Clark, the head of Schwab Advisor Services, was making his way through a Venti Starbucks coffee at Charles Schwab’s office in New York City. 

Clark also attended the MarketCounsel Summit but was already back to work and eager to talk about everything – except Charles Schwab’s acquisition of rival TD Ameritrade.

In October, Schwab stole the spotlight from Interactive Brokers and followed its lead, eliminating commissions it charged investors to trade stocks and ETFs. TD Ameritrade’s stock tanked on the news that week. Then, a month later, Schwab agreed to acquire the competitor. While the deal is pending, silence is a regulatory mandate.

But Clark was ready to talk about anything else Thursday in an interview with RIA Intel.

While others might be readying for holiday parties, or even beginning to already skip town, he’s eager to keep talking about his conversations on Capitol Hill, why RIAs don’t have to fear their own custodian and Wall Street knocking at the door.

You said that you spend a lot of time talking to people in Washington D.C.?

Advisors have created a fiduciary model. They've built it on open architecture of products, open architecture of technology. They've removed the conflicts that exist within the more traditional models. They've got transparency of fees. And when you bring all these things together, it's become a more desired model. 

And it's winning in financial services. But we have to get the population understanding. We’ve done surveys and people don't even really fully understand the word fiduciary. I've been in Washington D.C. and they've asked me questions like, ‘don't you think best interest is better than fiduciary?’ To me, doing what's right for individuals and being transparent is critical. But we're pleased that Reg BI has come out because it's been long awaited. 

What are your thoughts about fragmented state-level legislation and the Department of Labor’s rulemaking?

I think regulators sort of invited this when they came up with the lawmaking that they came out with. But we've witnessed what's going on in the insurance industry and that certainly hasn't held back the business but it's complicated with each state having their own state regulations around insurance and certainly makes it more difficult. Hopefully, the states will begin to adopt legislation and rules that are similar and don't become wildly different. We'll be pleased if the DOL comes out with something that's complementary. 

In the future, is being a fiduciary even going to be a differentiator?

Advisors, altruistically, were the biggest advocates of getting the entire industry to adopt the fiduciary standard. From a client protection perspective, they weren't wrong in that positioning. They were willing to give up that competitive advantage in order to do that. But I think you're hitting sort of the crux of the challenge of advisors in the future.

In reality, advisors retain their clients and they get great referrals from their clients because of the experience. How will they actually differentiate from each other in the marketplace? It's a growing profession and so there's more and more firms, there's larger firms, and they need to ask ‘why am I different from you?’

It's getting more competitive? 

I think you see some firms are starting to understand that perhaps succession is becoming a bigger issue for them. Other firms may not have the broad spectrum of services and are starting to seek out partners who might have complementary ones that they don't have. And the two can come together and be stronger. I think many smaller firms have learned with more capability and perhaps capital that they can grow more quickly and improve the condition of their firm over time.

Do Schwab’s other businesses compete with advisors?

We've long thought of services to clients as really a continuum of activities.

Our belief was that someone can come to us, and especially with the formation of the bank in the last decade, open a checking account, they can begin their investing career or financial career with us in that way. And as they grow their wealth, they have the capability to continue to use the services that we have throughout that continuum. 

We want to compete as a custodian. It's good for the model. But, at the end of the day, most advisors will say to me, ‘if I've lost a relationship to you, it's because of the fit. It wasn't right or I'm not doing something right and I'm happy to compete on that level.' 

The reality of the conversation is that advisors may have minimums in many cases and they still have many clients under their minimums. We have many clients that would fit into advisory levels but want to be self-directed. So, there's choice in the model.

The acquisition of TD Ameritrade aside, what about Schwab’s other competitors?

I think even the traditional financial services companies are heading on down a generational change path, which probably puts them more squarely in our space. But it's the right thing they need to be doing. They need to be getting off the path they've been on where they're so captive to their own proprietary product, and driving people out of the firm, and big payouts, and commissions. And those things don't survive the future model. It does feel like they are holding on to a lot of those things.

But they know where the puck is heading?

Some of them are still trying to get a ticket to the arena.