Schwab closes TD Ameritrade acquisition, forming colossal custodian

The largest RIA custodian just got even bigger.

Charles Schwab closed its acquisition of TD Ameritrade Oct. 6 in an all-stock deal valued at $22 billion — $4 billion less than the original valuation — uniting two of the four largest players in the RIA custody market into one company housing roughly $6 trillion in combined assets and 28 million brokerage accounts.

It’s a deal expected to transform the independent marketplace as technology offerings are killed or merged, well-known executives disperse and multi-custodial RIAs consider alternatives.

“We intend to deliver a winning combination of low costs, great service and industry-leading technology to support our clients, and the advisors who serve them, across every phase of their financial journey,” Walt Bettinger, CEO of Schwab, said in a statement.

Schwab announced its purchase of TD Ameritrade in late November, soon after both firms had dropped commissions on equity trading and saw a subsequent drop in revenue. Since then, both custodians have faced a challenging economic environment: Interest rates have plummeted to near-zero, the companies’ stocks have dropped in value, and they have sent employees home to work remotely due to the coronavirus health threat.

“Over the past 10 months, the Schwab and TDA teams have worked tirelessly to get us to this point in the midst of a uniquely challenging macroeconomic environment,” Schwab CFO Peter Crawford wrote in a deal commentary.

Though the deal is done, the work integrating the two companies has just begun and may be complicated by the ongoing coronavirus pandemic, which has claimed more than 200,000 lives in the U.S. On Oct. 2, President Trump said he tested positive for the virus.

Schwab has said it anticipates the integration will take approximately 18 to 36 months — until which, the firms will operate as separate broker-dealers, according to Schwab. In November 2019, the company estimated the merger would cost $1.6 billion over a three-year period.

Once the companies are united, Schwab’s RIA custodian business is expected to house about $2 trillion in assets, approximately half of the total $4 trillion assets in the RIA market, according to Cerulli’s latest figures from November 2019, which the research firm has not updated since. That’s about twice the size of Schwab’s closest custody competitor, Fidelity, which has approximately $932 billion in advisory assets.

Christopher Dilts/Bloomberg

Bringing together the RIA divisions will be a heavy lift.

Schwab and TD Ameritrade have more than 7,000 RIAs on their platforms, with many advisors utilizing both companies for custody services. A Schwab spokesman did not respond to requests for comment regarding the crossover between RIA customers. In August, a spokeswoman stated it was “proprietary info" the company wouldn't release at the time.

Earlier this year, Schwab shared initial plans for how it would merge the technology, announcing that it would keep TD’s rebalancing platform, iRebal. Recently, Schwab said it would also integrate thinkorswim and thinkpipes.

However, the company hasn’t determined the future of Veo, TD’s innovative platform in RIA tech.

“[Veo is] a great platform. It's very strong,” Noel Stave, who oversaw the development of RBC Black at RBC Correspondent and Advisor Services, toldFinancial Planning in early August. “I’m curious to see how that will evolve as it moves into Schwab. I’m keeping a close eye on it.”

When it comes to TD’s talent, several notable executives and employees have left, including its former head of innovation, Dani Fava, and the RIA policy advocate and 2021 FPA president Skip Schweiss. Judy Ricketts, who ran the TD Ameritrade retail contact center, and Scott Belous, TD’s former managing director of the digital client experience, both joined LPL Financial in recent months.

Tim Hockey, the firm’s former CEO, left TD before the acquisition was announced, citing a disagreement with the board.

For Schwab, this is the fourth — and, by far, the largest — acquisition to close this year. Schwab acquired USAA’s brokerage accounts at the end of May, purchased Motif’s IP and technology in June and bought fixed income manager Wasmer Schroeder at the beginning of July.

Other consolidation in the custodial marketplace, including Morgan Stanley’s deal for E-Trade and Goldman Sachs’ purchase of Folio Financial, is reshaping the business.

Schwab’s acquisition presents an opportunity for smaller custodians to attract RIAs looking to diversify their client asset placement and connect with small advisors who may be concerned about service.

"We are so proud of all the work both companies have put in to get us to this day,” Schwab’s Crawford wrote in his commentary. “We know there will be tough decisions and challenges to overcome as these two great firms come together, but we believe the potential of the combined firm is undeniably compelling.”

The TD Ameritrade Board granted Stephen Boyle, who had been serving as interim CEO of TD Ameritrade, a one-time cash transition bonus of $600,000 “in recognition of his contributions,” according to an SEC filing.

Effective January 1, 2021, Schwab expects to finish moving its corporate headquarters to Westlake, Texas, from San Francisco — as it’s a “more centrally located hub for the company,” according to Schwab.

The company said it shouldn’t have an impact on the “vast majority” of roles in San Francisco, and “expects to continue hiring in the city.”