Charles Schwab & Co. registers TD Ameritrade brokers to represent Schwab products and retain clients who have chosen to convert to “Schwab”
The Westlake, Texas giant has registered TD Ameritrade representatives en masse with its own brokerage so they can now pick up customers who have pre-converted to Schwab and also buy and sell Schwab products, open Schwab accounts, manage them and even get paid on them. all
Charles Schwab & Co. has taken its biggest step yet to mitigate the side effects on customers and staff of having its best-case scenario 18-month closing date on its TD Ameritrade (TDA) merger. stretching towards his 36 months in the worst case.
On Jan. 28, the Westlake, Texas-based broker-dealer largely eliminated the lame duck limbo that constrained its TD Ameritrade branch representatives by registering them with FINRA to sell and service Schwab products, even if they are always TDA personnel who use the TDA Brokerage System.
Schwab had been planning the move for a year, according to the firm.
During the company’s winter update, Jonathan Craig, Schwab’s head of investor services and marketing, repeatedly noted that this gives reps and their clients an “early” step.
“Dual registration allows TDA [reps] …to offer their customers TDA and Schwab products and solutions prior to account conversion, which is expected in mid to late 2023,” Schwab spokesperson Peter Greenley says via email.
What the regulatory conversion accomplishes is to prevent former TD Ameritrade reps from being disenfranchised by losing customers to the Schwab rep in the next booth.
Some of their clients have chosen to proactively convert their assets to Schwab before the inevitable but unspecified conversion date.
“[Reps] can now retain their relationship with customers who elected to switch to Schwab prior to account conversion, so dual sign-up benefits both our customers and our employees,” says Greenley.
Accelerating the enrollment of TDA representatives under Schwab’s registration also helps Schwab by reducing uncertainty and reducing the risk of customer and representative attrition, said Greg O’Gara, principal analyst at Livonia, Michigan, consulting firm Javelin Strategy and Research.
“It’s in [Schwab’s] in the interest of making the transition of customers as smooth as possible in order to stem attrition,” he explains.
The unusual move certainly appears to be a contingency plan designed to minimize the adverse effects of such a lengthy merger process, according to Ari Sonneberg, partner and chief marketing officer at Wagner Law Group in Boston, via email.
“Dual registration is [not] a common fact, [but] in the case of Schwab-TDA, the process was so long and endless [they] will probably see this as a way to facilitate the merger now, instead of doing it all at once, at zero hour,” he explains.
Charles Schwab Corp. agreed to buy TDA in November 2019. It closed the deal in October 2020 and said it hoped to have the businesses on board by May 2022, although it allowed it to expand to in October 2023.
But in last winter’s Wall Street update, the company changed its forecast to say it would likely need all the time allowed by the three-year estimate.
Then Covid-19 hit in earnest in March 2020, sending a snowball to Schwab and all financial firms that were hit simultaneously by an increase in demand for services and an increase in the value of securities held in portfolios.
Concerns about whether Schwab needed to make mass layoffs of TDA staff to mitigate the layoffs gave way to the need to retain and even add staff.
In this semi-surreal atmosphere, Fidelity Investments has stepped out and hired the equivalent of one new staff from TD Ameritrade over the past five months to keep pace. See: With unlimited benefits, Fidelity Investments hits the bull’s eye with its ‘monstrous’ hiring spree of a quarter of 9,000 employees and continues to recruit in overdrive
Schwab recently stepped up hiring with at least 140 new service employees already on board at TDA and 700 new tech hires underway, according to the company, which employs more than 33,000 people. See: Charles Schwab Corp. quickly hires institutional staff from TD Ameritrade.
Opening up access to Schwab’s products will certainly reduce the frustration of TDA representatives, according to Sonneberg.
“Anticipation of the merger by customers… [means] questions about when and how things will be transferred. This measure may make it easier to address these issues,” he explains.
TDA staff and TDA customers were also front and center, Greenley says.
“We are taking steps to ensure the best possible customer and employee experience with initiatives like dual registration,” he explains.
According to Craig, equipping TDA representatives with access to the Schwab platform also allows some of the final stages of the merger to be completed in advance, with little or no dissatisfaction.
“[Now] Ameritrade’s sales staff will operate in a dual capacity…the customer may come early, but [reps] keep the relationship,” he explained, during the Winter Update.
“Not only can they tell their customers about Schwab solutions, but they can also enroll them in those solutions, continue to support them, and get paid for those solutions.”
Schwab declined at this time to answer whether TDA reps will now be eligible for Schwab bonuses, given that the two companies are simultaneously separate and identical.
Still, Schwab deserves kudos for pulling off the feat without a noticeable hitch, Sonneberg says.
“In addition to the internal training that Schwab will clearly need regarding [TDA] brokers, from a regulatory point of view… [dual licensing] for each individual who will be doubly registered is no small feat.”
Indeed, the move to dual-licensing TDA representatives has resulted in a “deep” retraining of TDA staff, according to Greenley.
The training included learning about Schwab products, solutions and procedures, says Craig.
Schwab also likely had to file potentially thousands of pages of documents, given that brokers typically file Section Six of Form U4 on an individual basis when dual-licensing representatives. Section six consists of two pages — which can be electronically archived — of the 39-page form.
Schwab has yet to respond to how complicated the process was for dual-licensing TDA reps. en massebut a FINRA spokesperson confirmed that it has the ability to bulk transfer representatives in one day, usually following an acquisition.
On average, FINRA takes “two to three weeks” to sign a complete U-4 form, according to Sonneberg.
Schwab has not yet provided updated figures on the number of representatives employed by it and by TDA.
An air of uncertainty also continues to surround several key aspects of Schwab-TDA’s eventual integration.
Schwab, for example, has not yet specified when and how it will integrate TDA money market funds into its own.
Nor has it provided more than broad brush strokes on how it will integrate other TDA legacy products, beyond an August 2020 confirmation that it will retain thinkorswim and thinkpipes trading software. , and iRebal portfolio rebalancing software. See: Schwab had an easy decision to keep TD Ameritrade’s thinkorswim platform afloat, but Veo and Veo One are more likely to be scuttled after the merger.
“The timing and details will vary for different products and services,” says Greenley.
“We will keep customers informed as plans take shape and the onboarding process unfolds in the coming months,” he adds.
iRebal, thinkorswim and thinkpipes will be fully available through the Schwab platform when Schwab and TDA are fully integrated, Schwab COO Joe Martinetto explained during the company’s winter update.
During the trade update, Schwab also announced plans to use TDA’s model market center portfolio construction software in combination with iRebal.