Charles Schwab’s “broad-based marketing” is getting a little more refined. Last October, Schwab CEO Walt Bettinger did a live question-and-answer session at the firm’s IMPACT conference, where he was questioned about the company’s robo platform seemingly targeting RIA investment management clients. He dismissed those concerns and said the firm would always take the side of the advisor if it came down to a competition between retail and advisory.
With yesterday’s announcement of the firm offering subscription-based financial planning, and a rebrand that saw “Advisory” dropped from Schwab Intelligent Advisory—in exchange for “Portfolios Premium”—advisors have a little clearer idea of what Bettinger meant.
Some advisors already know that Schwab competes with them, whether they admit it or not, said Jim MacKay, founder of Jim MacKay Financial Planning, LLC in Springfield, Mo. “Schwab already competes with a lot of advisors when it comes to providing financial planning and investment management. I think this will strengthen that position,” he said. “But I'm not personally concerned about it, because I don't feel like I'm competing in the same space with them. But a lot of advisors do.”
“They should be concerned,” he added.
As a former call center financial planner at Vanguard, MacKay has an idea of what goes into the planning clients should expect to receive. Volume is a big component. Personal connection? Not so much. “We were expected to do five financial planning calls per day, each one about 45 minutes or so. And those people rarely had a connection to come back to me,” he explained. “There's no way, with that level of volume, working with potentially thousands of clients, to have any real connection with them. Your understanding of that client is really shallow.”
But that’s not to say the client or advisor experience is valueless. In fact, it’s the opposite, said MacKay. Younger financial planners gain valuable experience in call centers, he said, experience that’s particularly helpful for those who might want to start their own businesses.
The financial planners MacKay was around at Vanguard fell into two groups: young advisors who sometimes chafed at the scripts and formulas that they had to follow, and more experienced advisors, who had left their eat-what-you-kill environments for the “comfort” of a call center at the end of their careers. “That was kind of an interesting dynamic when I was there. You had young people, but you had older planners too,” he said. “Everybody's got to find their own spot.”
End clients also benefit from a service they might not have received before. Firms like Vanguard or Schwab are “working with hundreds of thousands of people and providing them advice that's far better than I think they used to get,” MacKay noted. There are fewer barriers to call center advice and some clients don’t place a lot of weight on strong, long-term relationships with advisors.
There could be trickle down benefits for fee-for-service advisors when it comes to regulators’ understanding of the industry. While some advisors might be concerned about Schwab providing call center financial planning and see it as tiptoeing closer to advisors’ clients, Michael Kitces, co-founder of XY Planning network, wanted to “welcome” the company. In comments on social media, Kitces said he hoped the move by Schwab into “the world of fee-for-service” would advance frustrating conversations with regulators on fee-for-service financial advice models and while maintaining that it strengthened the argument that advisors need to find “niches and specialization.”
The initial reaction from advisors to Schwab’s announcement might be fear, but it shouldn’t be, said David Miller, managing partner at Auctus Advisors, LLC, based in Charlotte, N.C. “There’s enough clients and money to go around and we don’t view them as competition,” he said. “They might certainly be competing with smaller firms that go after smaller accounts on volume, but we’re not worried about it.” Auctus Advisors has a $2 million account minimum.
“Anything that gets America more financially literate is awesome, because I think that improves society as a whole,” he said. Schwab’s new service should be viewed not as debasing the value of financial planning, with its $30 a month subscription fee, but as a way to introduce financial planning to clients previously unserved, he said. “Walt [Bettinger] has been very careful to avoid trying to portray that” financial planning fee as the new price point for financial planning, he added. “This is a new market. This is people that didn't have access to advice before and are now able to get access. And that's a wonderful thing.”
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