UPDATED: Schwab Is Back, Aims New Program at Multi-Millionaires
(Updated in second paragraph to indicate the service is aimed at retaining, not attracting, ultra-high-net-worth customers, according to Schwab.)
Attention, private bankers and upper-high-net-worth brokers!
Charles Schwab Corp. is about to test Chairman’s Circle, a service to retain ultra-high-net-worth clients who typically migrate to financial institutions with snootier reputations as their wealth increases, company officials said this week.
The program, which the San Francisco-based company trademarked this month, will launch in spring when company founder and chairman “Chuck” Schwab meets personally with clients in New York and New Jersey who have at least $20 million with the firm.
Chairman’s Circle is part of a broader program to “deepen relationships” and improve the experience of any client who keep $5 million or more with Schwab through its branches and other direct channels, Investor Services division head Terri Kallsen told division employees on Wednesday.
Schwab last year attracted $1.15 of new client assets from outside firms for every $1 it lost to them, but the ratio was worse among very wealthy clients, she said.
“Right now they seem to think they graduate from Schwab and then they go to a different firm,” Kallsen said. “In reality, we have great service and very confident advisors, so we’re going out to the market very boldly to tell them you don’t need to leave Schwab. We can get everything you want here.”
A Schwab spokesman confirmed the new project, but declined to give details on the number of clients who would qualify for the enhanced products and services offered in Chairman’s Circle.
The new program will hurl the San Francisco-based company into the escalating battle among money managers, family offices, private banks and brokerage for ultra-wealthy clients and prospects who tend to use a broad array of financial services and pay fees tied to assets they keep at firms. Such fees are considered much more stable than market-sensitive commissions, which remain the daily bread for many brokerage firms.
Chairman’s Circle also could spark internal battles between Kallsen’s Investor Services division, whose 1,110 advisors work at branches and call centers, and Schwab’s Advisor Services division, which sells products and execution services to generally upscale clients through about 7,000 independent investment advisers. Schwab prohibits its financial consultants at branches from prospecting for clients of its RIAs, but channel conflicts are an ongoing tension at Schwab and other firms that market themselves to both consumers and financial professionals.
In unveiling the “Chairman’s Circle” concept, Kallsen also positioned it as another tool to help Schwab meet a new goal of managing $3 trillion of client assets throughout the company by 2017. At the end of 2015, it the number was $2.5 trillion, including $1.4 trillion through Investor Services and $1.2 trillion through the Advisor Services division headed by executive vice president Bernard Clark.
Schwab’s evolution from a low-cost provider of investment services for clients who manage their own trading to a full-service adviser of clients ranging from the mass market to the ultra-high-net worth is bound to intensify channel conflicts, said Tim Welsh, a former Schwab marketing official.
“On one level, maybe [Chairman’s Circle] is window dressing to keep the do-it-yourselfers who have a lot of money,” said Welsh, head of consulting firm Nexus Strategy. “On the other hand, it’s blurring the lines, and maybe stepping over the lines, with a full wealth management offering.”
Schwab spokesman Greg Gable downplayed the potential for conflict. The primary focus of Investor Services remains self-directed investors, he wrote in an e-mail. Brokers will continue to refer clients who grow in wealth and want more sophisticated guidance to RIAs in the Advisor Services unit, he added. Advisors who nab such clients typically pay Schwab .25% of the clients’ assets.
Gable declined to specify how many clients would now qualify for Schwab Chairman’s Circle.
“It is a service designed for a small set of highly affluent and loyal Schwab clients—those typically with tens of millions in assets at Schwab,” he wrote. The service will include “introduction to Schwab Advisor Network, where appropriate,” he wrote.
Matt Cooper, a partner at Beacon Pointe Advisors, an RIA in Newport Beach, California, with around $7.5 billion of managed client assets, takes Schwab at its word that Chairman’s Circle will not affect large RIAs who benefit from Advisor Network referrals. But he also says the service isn’t entirely benign.
“Larger RIAs with a greater value proposition don’t have much to worry about,” he said. “For smaller RIAs doing asset allocation and mutual funds and a static plan, there’s a real threat for them.”