One of the latest wrinkles in Charles Schwab’s transition of custody of TD Ameritrade’s system involves RMDs, and a lack of records for some that were taken this year before Sept. 5.
That left advisers who were part of the movement double-checking to make sure their clients who are 72 or older aren’t taking higher distributions from tax-qualified retirement accounts than necessary before the end of the year.
Several counselors talked to Investment news on condition of anonymity said that because required minimum distribution data has not moved from TD Ameritrade’s VEO One system to Schwab’s, there will be a significant headache for advisers who rely exclusively on the custodian’s records.
“This will cause serious problems if people take them twice,” said one adviser. “I don’t think they will realize the problem until December. Then it will be a major crisis for advisors or not seen at all… The problem is that many advisors will rely on the information on the Schwab website and submit RMDs twice.”
Advisers did not want to be quoted by name because of their ongoing relationships with Schwab.
Another said that compared to other post-transition issues, the RMD data issue is minor. Advisers can look for that information in client management software – if they use one – the adviser said. But if they don’t, going through individual accounts is the next best option, albeit time-consuming, they said. “Schwab will tell you, ‘That’s your responsibility'” to keep track of RMDs.
A related issue that an advisor noted was that the taxes on RMDs were set at default levels after the move, even though some states do not tax retirement income. A client in Iowa, for example, has money set aside for state taxes, even though the state doesn’t tax RMDs, and the advisor said they couldn’t step in and fix the problem. The customer must work with Schwab to change the rates, they said.
A third-party adviser that has a large number of clients who are older than 72 said they proactively downloaded all RMD data before the custodial platform change.
“We follow when they write checks for charities, because that’s a really big question mark,” they said.
NO TRANSACTION FEES
Schwab has built its list of available funds with no transaction fees, which is a big selling point for independent advisors. Being able to offer clients institutional share classes of many mutual funds helps advisers express their value, it said.
“This is our competitive advantage. When we go to sell our services to a client, they can go and make (a financial choice) themselves, but we say, ‘We are professionals’, with access to the cheapest share classes, said the adviser. . While TD Ameritrade’s no-transaction-fee platform, like Schwab’s, included thousands of mutual funds available in low-cost share classes, the lists were not identical, they said. That led them to have to review clients’ portfolios to make sure , that they do not contain funds that now have transaction fees.
“I had to go in and review about 45 investment plans and take out funds that Schwab would charge a fee for,” they said. Although the custodian indicated it would waive transaction fees for some of the affected funds if the client used a non-institutional share class, that was not a good alternative, the adviser said.
That thing is probably an oversight, they said. “I just think they don’t know this. I don’t think they would do this on purpose.”
However, another adviser said they preferred Schwab’s list of no-transaction fees and that their client portfolios were not affected by the change. That adviser said the access since the transition to institutional stocks of funds from T. Rowe Price, Vanguard and Dimensional Fund Advisors is a big plus.
CUSTOMER RELATIONS
The thing most often cited by advisors who have been with TD Ameritrade is the communication that Schwab has with its clients. In some cases, customers had to resolve issues directly with Schwab, without the help of their advisors. Schwab also sends notices and communications to clients that advisers don’t receive either, so they are sometimes blindsided by the problems the clients face, advisers said. Investment news.
“TD Ameritrade had the investor focused. They would never communicate directly with your client without having you communicate with them,” said one advisor. “Everything shows that Schwab (is) very focused on retail.”
For example, one customer who traveled outside the United States was unable to log into his account for two weeks because his mobile phone number had changed from what was registered and he was unable to use two-factor authentication, the adviser said, adding. that they could not intervene.
“I’ve talked to four of my advisors, and collectively, we have about $450 million in assets under management. All four of us are really unhappy, and I think when the first of the year comes around, we’ll be looking around (for a new custodian).”
Complicating that is that custodians can charge platform fees to clients, and that doesn’t go down well, especially for smaller accounts, the adviser said.
“It’s a fantastic opportunity for new custodians to come into the space,” they said.
The fact that clients must work with Schwab to resolve account issues, rather than having advisors handle it on their behalf, makes some clients wonder why they’re paying the advisor, another said.
That adviser is debating whether to add another guard for new accounts, but so far they “haven’t found anyone whose technology is even close enough.”
In working with customers to address issues that have arisen since the transition, “our estimate is 20% to 25% more work in operations,” they said. “My operatives will get a nice bonus this year.”
However, Schwab representatives have listened to concerns, and the company has indicated that it will address them as soon as possible, the adviser said.
“I think we’ve seen the worst,” they said. “They listen. We might not get the answer we want, but at least they’re looking at it.”
WHO GET THE CUSTOMER?
A bigger issue that the advisor, like others, has pointed out is the fact that Schwab, with its presence in the retail business, is at odds with advisors.
“Schwab trying to capture customers is nothing new,” they said. “I don’t think they recognize the integral part that advisers are to the business, and they assume they can take the business anyway.”
Schwab did not comment on the RMD data issue, availability of funds on its platform without a transaction fee or its interactions with adviser clients. Earlier, the company indicated in a statement through a public relations firm that the Schwab Alliance system aims to strengthen the relationships that advisers have with their clients. At the recent Schwab Impact conference, Schwab executives noted that the firm has been working to improve technology for advisors and added DocuSign for e-signatures and onboarding.
Overall, advisors acknowledged that the migration of 3.6 million accounts across 7,000 advisors was a massive undertaking. Most of the transfer was a success, they indicated, which was a theme Schwab executives emphasized in the days following the migration.
But amid the unhappiness among some councillors, there have been calls for alternative guardians.
Mike Watson, head of RIA custody at Axos Advisor Services, said, “We won a lot of business just saying, ‘Try this.’
Consolidation in the maintenance business has led to a decline in customer service that puts advisers up for grabs, said Watson, who until 2021 was managing director of national strategic accounts at TD Ameritrade. “It’s good for the whole industry that there are many choices for an adviser. That raises everyone’s game.”
Axos “signs up firms every week,” but many advisers it talks to are trying to finish the tax year before focusing on changes, Watson said.
“Advisors have to recognize that their level of flexibility has changed” with Schwab, he said.
“If you think about where TD did so well, it was a great alternative to Schwab,” he said. “Now it’s up to me and others to make sure there’s a good alternative.”