TD Ameritrade-Schwab Podcast Episode 451

by | Aug 18, 2023 | Podcasts

TD Ameritrade-Schwab Podcast Episode 451

We learn, in episode #451 of the Mullooly Asset podcast, that when it comes to mergers of ANY kind, Casey & Tom bring up the very first thing you will hear is “nothing will change!”
When in fact, EVERYTHING will (eventually) change!

Ever wonder how big mergers in the financial world can affect you? Buckle up, because we’re about to explore the recent TD Ameritrade-Schwab merger, and how it impacts compliance and custody. We shed light on the transition process, the correspondence Schwab sent to its clients, and the enhanced experience the new platform promises to deliver.

Plus, we’re not just stopping at TD Ameritrade-Schwab; we also introduce you to other giants of the investment advisor space like Fidelity, Pershing, Bank of New York Mellon, and LPL Financial. The introduction of “I-Rebal” trading capabilities is set to streamline some of our internal trading operations, but what does that mean for you?

This isn’t just about mergers, we’re also going to take you behind the scenes of how we select a custodian for our clients. We’ll unpack our rigorous due diligence process, where factors like reputation, financial strength, service quality, and the range of investment products are assessed. Furthermore, we’ll give you an insight into our transparent compensation structure, where our only form of payment comes from client fees. Not a penny more. So, join us as we decode the impact of the TD Ameritrade-Schwab merger on compliance and custody, while offering a glimpse into our world of investment custodians.

Links for TD Ameritrade-Schwab Podcast Episode 451

$3.1 Billion RIA moves away from Schwab’s Custody Platform
See all our Mullooly Asset Videos here on our website
See all our Mullooly Asset Videos on our YouTube channel (be sure to subscribe!)

Mullooly Asset TD Ameritrade-Schwab Merger video 1
Mullooly Asset (YouTube) TD Ameritrade-Schwab Merger video 2


Transcript for TD Ameritrade-Schwab Podcast Episode 451

Welcome back to the podcast. This is Tom Mullooly, and joining me today is Casey Mullooly. Casey, how are we Ready to roll? So we’re going to be talking a little bit about some compliance issues – which kind of falls under the umbrella of custody, and this was all triggered by a custodian change.

Casey 00:24
Yep, that’s the news of these last couple of weeks. I know you’ve done a couple of really good videos on it. We’re talking about the TD Ameritrade and Charles Schwab merger that is taking place in…

Tom 00:40
…it may be done by the time this podcast comes out.

Casey 00:42
Yeah, in the next couple of weeks. The transition is going to be finalized. It’s going to happen over Labor Day weekend, so first weekend in September. Td Ameritrade is going to. Everything from TD Ameritrade is going to move over to Charles Schwab. Schwab has been sending out notices mail to every client for every account that they have, letting them know what to do and what to expect. And one of the things that we always hear when these big transitions happen is that nothing is going to change. Everything is going to be the same, except for the fact that it’s going to be completely different.

Tom 01:23
We’ve had over the years. We’ve had many of our vendors merge. We’re talking about compliance companies. We’re talking about our technology groups that get bought and sold. We talk about I mean even Dorsey Wright, you know all of these different vendors, people who supply us the tools to do the work that we do. Many of them have been merged, acquired, bought, sold, and the first thing they tell you in the announcement is nothing will change. Nothing could be further from the truth. Everything will change. Everything will change and there will be some change for folks as we transition from TD Ameritrade to Schwab. Your investments are not going to change.

Casey 02:11
Our relationship is not going to change, it’s going to take some getting used to using the new Schwab platform. I think it is pretty intuitive, both from the institutional side and the retail side.

Tom 02:24
Now to be clear, we Mullooly Asset. We have been on the Schwab platform now for nine or ten years.

Casey 02:32

Tom 02:33
But when we talk about getting used to using the platform, we’re talking about our listeners, our clients, who are no longer going to have Advisor Client as their website to go to to see their accounts at TD Ameritrade. Now they’re going to Schwab Alliance. We’ll link to that in the show notes as well, so it’ll be an adjustment period. I think I speak for Casey and for the rest of the team, since we’ve been on the platform now for several years on a limited basis.

I’m very excited and I think the rest of the team is too about what our clients are going to experience on the Schwab platform. Not that there was anything wrong with TD Ameritrade. When we started Mullooly Asset over 20 years ago, we were on TD Waterhouse and then it became TD Ameritrade and now it’s becoming Schwab. Every single time it has been a very positive improvement for the client.

Casey 03:31
Right. I think that’s important to remember and to hammer home. Just because it’s different doesn’t mean it’s going to be worse. I think, like you said, I think it’s going to be better. Schwab and TD Ameritrade were the two biggest custodians in this space, and the fact that they’re merging together they’re sharing technology that were maybe just used on the TD Ameritrade side. Now Schwab users are going to be able to use that new technology in terms of placing trades and stuff like that. It’s just going to be-.

Tom 04:06
Do you want to talk a little bit about that? Well, sure, I do like I-Rebal. I mean, clients aren’t aware about what I-ReBal is, but we are.

Casey 04:14
Right. Yeah, some of the trading capabilities that Schwab users are going to have access to now really make things pretty easy on our end. I-rebal if you want to think of it as basically just a big calculator, we can use it to do things like just set Do our rebalancing, do you know, run our models, our investment models just through I-Rebal, so we don’t have to sit there with a calculator and Excel sheet or, you know, pen and paper and do these calculations. I-rebal is pretty great at just doing all of the calculations ourselves and determining what amount of how many shares this account should get, how many shares that account should get.

Tom 05:05
It does it all pretty seamlessly In terms of proportion and leaving cash aside for withdrawals or fees or something like that. That all gets calculated in and you know, quite literally. I used to do all of that in an Excel spreadsheet.

Casey 05:19
Yeah, it eliminates human error, and the fact that Schwab users are going to be able to use that now is, I think, just it’s going to make life a whole lot easier for a lot of people. Yeah, I think TD Ameritrade and Schwab I don’t know exactly the amount of market share that each had going into the merger, but now, along with Fidelity though, I mean those are If you’re not custodying your assets there, then where else are you doing it?

Tom 05:45
Only the big gorillas in the investment advisor space are now Schwab, because it was TD and Schwab and now it’s just Schwab and Fidelity. But some of the other players that are out there are Pershing. Pershing is a division of the Bank of New York Mellon, so there’s three companies I just mentioned that are now all one.

I wrapped up Bank of New York, Mellon and Pershing, and so if you have an independent advisor, you may get a statement. We know them by sight. When someone brings us a statement and we see it, we know that the advisor that they’re working with clears through Pershing. Nothing wrong with them. But another player in this space is LPL Financial and they’re a little bit of a hybrid because there are plenty of LPL advisors who use LPL as their custodian. A large chunk of them are commission brokers.

There are some fee-only advisors and financial planners that use them, but I want to zoom in on the fact that we’re talking about Schwab, fidelity Pershing LPL, as custodians. I can’t believe we have to say this, but it’s coming through in some of the conversations that we’ve had recently with clients, where clients will get on the phone with us and they’ll say so, you guys got sold to Schwab, we didn’t go anywhere. We’re still here as the independent advisor. We used TD Ameritrade as our custodian. We also used Charles Schwab as another custodian. Now TD Ameritrade is getting folded into Schwab and so now we will have one custodian, but they are the custodian and so you get your account statements. Your assets are in custody at Charles Schwab. We are the. We’re merely the advisor on the account right.

Casey 07:47
We, the custodian, basically think of that as who? Who has your money? Right, we don’t have your money. That’s why sometimes people get confused. When they’re sending checks into the account, they’ll say do we make it out to Mullooly Asset or to TD Ameritrade or Schwab? And we say you make it out to the custodian, you make it out to TD or Schwab, right, not us. Then, like I said, we don’t have your money. We can help you get and send money from those accounts, but Schwab and TD Ameritrade are the holders of your money.

Tom 08:23
Back in the day I used to have some clients, who are now deceased, who used to send checks into here and the checks would be made out to Tom Mullooly $75,000.

Casey 08:35
Yeah, a big no-no. We actually have a legal requirement to send that check back to you within three business days or we get. We’re in trouble. We’re in trouble, right, because that, yeah, opens up a whole can of worms that we don’t want to be involved in, right. Yeah, we are not affiliate. We don’t get paid for having money at TD Ameritrade or Schwab or having these our accounts there. We choose to have your accounts at Schwab because we believe that they are the best custodian in the space, not because we get any sort of financial incentive to do so. And we actually have another legal or were required in order to comply with the rules and regulations of the investment advisory industry. We’re required to review what’s called our best execution policies every year in order to determine where is the best place to have our clients money.

Tom 09:39
And that’s part of our fiduciary responsibility to our clients is to go through this exercise every year and find out hey, is there another place where our clients could custody their assets? That might be a better opportunity for them. Now, years ago, when I was using TD Waterhouse as a custodian, I would go through this discussion with folks and I would say, if we become dissatisfied with TD Waterhouse, maybe they have poor service, maybe they jack up their fees, maybe we get poor execution on our trades. We can look at going to Ameritrade, we could go to eTrade, we could go to Fidelity and Vanguard and Schwab and all these other places.

Several of those names I just mentioned are gone or they’re no longer in the business of providing advisor solutions, and I think that that is.

Casey 10:39
You obviously want to have options in terms of where to have your money, but I think that there is also a level of comfort that comes from Having your assets held by a big name like Schwab or or fidelity.

Tom 10:57
Even I just I just read a story in Barron’s and we’ll link to it in the show notes where there’s an advisor advisory team that’s got three billion in assets custodied and they said that they were becoming dissatisfied. They were on the TD Ameritrade platform. They were becoming dissatisfied with the merge with Schwab. They left and they went to a firm called – well – the name of the firm isn’t important. I never heard of them and I’ve been in the business now for almost 40 years. I think that would be a very difficult “sale.” And you know, it’s not a transactional thing, but you have to – you have to sell your clients that the custodian that you’re going to, is safe and secure. It’s not like you’re going to Signature bank. You know, Signature bank did a huge job of hiring away advisors from other banks. And they brought all their clients with them and then Signature Bank went under — that was just a couple months ago that we were talking about the whole Silicon Valley Bank thing, and that is something that we haven’t seen in over…

I said I’m sorry, I said Signature bank, but I meant to say “First Republic,” First Republic Bank. Okay.

Casey 12:12
Yeah, that was a risk that we haven’t seen, and since since 2008, 2009, when some of those big players went under. But I want to go through some of the requirements that we look at when we’re doing that best execution, due diligence, and two of the biggest things are reputation, financial strength, security and stability.

Tom 12:35
This is a process that we have to do, and it’s not something where we “just check a box.” This is a process that we have to go through every year.

Casey 12:42
Mm-hmm, and the next one is prior service to us and our clients. So basically, have they done a good job for us in the past. That carries some weight in this decision-making process. Some of the other bullet points just to go through them is quality of service, competitiveness of the price of those services — so that that gets into things like commission rates, margin, interest rates, other fees and willing to negotiate on those prices with us. Breadth of available investment products, stocks, bonds, mutual funds, exchange traded funds, etc. Capability to execute clear and settled trades — so that’s the buying and selling of stocks. That’s the the actual process of doing that. That’s something that I think flies under the radar. When we’re talking, you know, when we’re. It’s really just assumed nowadays that you’re gonna be able to do that, and I think Schwab does a great job of you know filling our orders and making sure that we’re getting good prices. But do you want to get into what is a, what is and isn’t a good price on a trade, or Give us a little bit about?

Tom 13:58
The next to last item that you mentioned was availability of products and this was a very big driver behind me reaching the decision to leave the brokerage community.

I was at (a very well-known firm) and I left in 2002, in part. Well, I’ll give you a few examples. Through the very late 90s and those first few years of the 21st century, I had clients calling me up asking me specifically to buy the Legg Mason Value Trust. Now, this is not a recommendation to buy or sell. That should be pretty clear. But the firm that I was at did not have a selling agreement with Legg Mason to buy their funds. We were prohibited from buying that particular fund for our clients at the firm. Likewise, the firm that I was at did not have a selling arrangement with Vanguard, so we could not buy the Vanguard Total Stock Market Index or any of the Vanguard funds that were available and very low cost and really some of them are good, so we couldn’t do that. An independent advisor, someone who is a registered investment advisor, fiduciary they have the ability to do this. It’s a big deal.

Casey 15:23
Right. So your hands were tied behind your back. Your investment pool was severely limited, based on the relationship that your parent company had with these other funds. Basically, that’s pay to play.

Tom 15:39
It is, because, at the same time that they were prohibiting us from investing client money in these funds, like I just described, they were also cranking out new products. While you may not be a difference in compensation, you lost your space in the batting order if you didn’t participate in selling these new funds to clients. So, hey, you want IPOs? Well, you’re going to have to put a million dollars into this new fund that we’re bringing out, this new fund with high fees and no track record. How do you do that in good conscience?

Casey 16:15
Yeah, I can see how you couldn’t reconcile that. Sure, it doesn’t exist for us here. Luckily, I think it still exists to some extent when you’re dealing with brokers. You don’t know what incentives they’re getting behind the scenes unless they disclose them. But still you want to be working with someone who has every option available to them, because then you know that your advisor is making the decision based on the investment merit and not because they’re incentivized to put you in that investment.

Tom 16:54
And to take that one step further. I want to be very clear to everybody listening. We get paid one way, only one way from our client fees. They’re billed on a quarterly basis. We do have some other clients that are billed monthly, but it’s client fees, that’s it. We receive nothing from TD Ameritrade. We receive nothing from Schwab. We have to act in our client’s best interest all the time. That’s why we will never work in a situation where we’re being compensated any other way. Along the same lines of what Brendan was talking about last night on his way out he was like “I don’t know if people think we are paid by TD or Schwab. I think it’s worth saying at least once a year.

Casey 17:40
I think it’s very important for us to communicate that and to make that distinction that we only work for our clients, will always act in our client’s best interest. I know this merger is a pretty big change and it brings up a whole host of compliance and other issues that I hope we shed some light on in this week’s episode. But I think that’s going to wrap it up for this episode of the Malooly Asset Podcast. Thanks, as always, for listening. We’ll be back with you next week.

Casey 18:13
Tom Mullooly is an investment advisor representative with Mullooly Asset Management. All opinions expressed by Tom and his podcast guests are solely their own opinions and do not necessarily reflect the opinions of Mullooly Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Mullooly Asset Management may maintain positions and securities discussed in this podcast.




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