Schwab Advisor Services CEO Bernie Clark is today quoted apologizing to Schwab-affiliated RIAs for mistakenly prospecting to their clients, which reminds of an incident in early-1998 when Schwab contacted the clients of former Boston-area advisor Marjorie Meyer.
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The May 1998 story is so old, it's not posted to the Web and I had to scan an old hard copy from the magazine. But it explains how Schwab accidentally marketed to clients of Schwab-affiliated RIAs 13 years ago.
In fact, while that was the first article spotlighting Schwab's channel conflict problem, it framed the way advisors have perceived Schwab to this day.
Meyer, a CPA and owner of an RIA, was selling her small investment advisory practice, the story reported, when a sales rep from the Chestnut Hill Schwab branch telephoned her clients and tried to refer them to other RIAs who were in Schwab’s referral program.
“An employee at the Schwab branch had learned that Meyer was retiring and employees called Meyer’s clients,” according to the article. I quoted Meyer saying “They had begun to cannibalize my business.”
The story, which Schwab employees today probably know nothing of, is ancient history.
Or is it?
"We have policies in place to ensure we respect the primacy of the relationship that advisors have with their clients. As you can imagine, at a firm of this size we do many, many mailings and we have the necessary safeguards in place within our system designed to prevent this from happening.”
In 1998, Schwab spokesman Glen Mathison, who I will always remember fondly for his professionalism, said: “It was a miscommunication” that led Schwab branch employees to believe that Meyer herself had told the branch she was retiring. The branch employees, Mathison said, were only trying to help Meyer’s clients find other advisors.
However, in the story 13 years ago, I went on to report “The Meyer case is but a recent incident in a long history of independent advisors’ uneasiness with Schwab Institutional.”
“No evidence suggests that Charles Schwab & Company is engaged in a concerted corporate conspiracy to take clients away from financial advisors,” I wrote. “But Schwab must walk a fine line in serving Institutional advisors while it serves tens of thousands of retail accounts. About one in three Schwab Institutional advisors contacted at random for this article said that Schwab had inappropriate contact with their clients within the past three years.”
While quoting myself is kind of creepy, I am bringing up this ancient story, more than 13 years later, because Schwab Advisor Services stands accused once more of contacting RIA clients inappropriately. As Yogi Berra might havsay, "It's like deja vu all over again."
I, like many advisors who have been around for more than few years, today see Schwab’s prospecting of RIA clients as channel conflict.
Schwab is just one of many competitors advisors must face, but it is different from other advisor competitors in one important way: it’s also a trusted partner to advisors using its clearing services.
Schwab Advisor Services needs to do a better job of avoiding issues of channel conflict like this recent one.
It's true that people and organization make mistakes, and Schwab’s is a very large organization. But Schwab has had over 13 years to get this right.
Schwab’s large size, which is cited for the mistake by Bernie Clark, is no excuse. In fact, the company’s simultaneous success in penetrating deeply both the advisor and retail markets is testament to Schwab’s strong brand and quality of service.
Thirteen years after I first wrote about Schwab inappropriately contacting advisors clients, Schwab remains the dominant custodian serving RIAs. That’s testament to Schwab’s commitment to the RIA custody business.
To protect its brand, however, Schwab must do a better job of managing channel conflict. It’s in the best interest of Schwab as well as its affiliated RIAs to better manage channel conflict.