Expansion at Schwab rankles RIAs

Business Men Shaking HandsWith its acquisition of money manager ThomasPartners Inc. last week, The Charles Schwab Corp. took another step in building out its small but fast-growing proprietary separate-account platform.

But by buying the firm, Schwab risks once again ruffling feathers among its army of more than 7,000 registered investment adviser custody customers, some of whom worry about competition from the money managers.

“I’m always concerned about a custodian buying asset managers,” said Ken Winans, president of Winans International Corp., which manages about $140 million. “As a money manager, you have to be concerned with this.”

The deal parallels the 2010 purchase of Windhaven Investment Management Inc., a tactical manager of exchange-traded-fund model portfolios. By all accounts, Windhaven has been a success for Schwab, with assets under management tripling to $12.5 billion since the acquisition.

Dividend Strategy

The $85 million cash purchase of ThomasPartners, which has $2.3 billion in assets under management, adds a dividend strategy to Schwab’s money management mix, a hole that the firm wants to fill as investors increasingly search for yield.

The deal also adds to Schwab’s profitable stable of fee-based offerings that have bolstered earnings as traditional business lines tread water, and it positions the company to meet a goal of having a quarter of its retail clients in some type of managed account — close to what the wirehouses have — up from about 16%. The transaction is expected to be completed before year-end.

For some RIAs, the acquisition brings back bad memories of August 2011 when Schwab sent a marketing piece to companies with retirement plan assets under its custody — including advisers’ clients. The letter said that Schwab would be adding Windhaven portfolios and another managed-fund programs as investment options, but that the action didn’t apply to those who worked with an independent adviser.

Bernie Clark, head of Schwab Advisor Services, later apologized to advisers, saying that the letter was a mistake and against Schwab’s policies.

In an interview, he said that he hasn’t heard negative feedback regarding the Thomas-Partners deal.

But some advisers can’t help wonder about the competitive implications.

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