Thoughts on Investing (Winter 2019) – Changes in the RIA Industry and what they may mean for investors

Thoughts on Investing (Winter 2019) – Changes in the RIA Industry and what they may mean for investors

December 11, 2019

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Back in October, Charles Schwab & Co. made headlines when they announced they would charge zero commissions for trades of Equity and Exchange-Trade Funds (ETFs). Other discount brokerage firms, such as TD Ameritrade and Fidelity Investments, soon followed suit. But TD Ameritrade, which attributes a greater percentage of its revenues to trading commissions than Schwab does, saw a sizeable drop in their stock price in mid-November, and Schwab moved to acquire TD Ameritrade in a $26 billion all-stock deal.

So what do these recent developments mean for the rest of the investing world, especially the independent Registered Investment Advisor (RIA) community—including REDW Wealth?

Regarding Mutual Funds

Schwab does not include mutual funds in its zero commission initiative, as most mutual funds currently pay a fee to Schwab to be included as a Schwab One Source fund—meaning they are traded without charging the investor a direct commission. We expect some mutual fund companies will choose to get on the One Source platform (or go with a similar set-up at other custodians, like Fidelity) or continue to stay on the platform. We also expect that some mutual fund companies will open ETF versions of their funds. In fact, we have heard that some mutual funds will make it easier for investors to access their Separately Managed Accounts (SMAs), and they can therefore take advantage of Schwab’s zero commission trading.

At REDW Wealth we have limited the use of SMAs due to their higher internal costs compared to funds and ETFs, as well as the high minimums they have typically required. However, as the landscape continues to change, we will maintain our commitment to control the fees and costs associated with investing as we strive to deliver a complete wealth management product worthy of your trust.

Regarding Banking

As technology has made both moving money and investing at Charles Schwab and Co. easier than ever, some in the media have speculated that Schwab is seeking to serve as both bank and broker for its clients.

Regarding the Advisor Community

Some in the advisor community believe that Schwab will make up the revenue it has lost from commissions by charging a fee to advisors. It is possible that Schwab will try to use their increased size to add a layer of costs to us in the advisor community. Will other firms try to enter the custodial space and offer an alternative to Schwab? Whatever the outcome, we want you to know that we are committed to remaining a fee-only, fiduciary firm. These are core values that we hold dear, and the trust you have placed in us is not something we take lightly.

Copyright 2019 REDW Wealth, LLC. All Rights Reserved. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice.

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