(In 9th paragraph corrects to read "...and on whether clientsare on track..." to show that issue is about clients, not thewirehouses; in 10th paragaph, corrects to read "he and otherexecutives" to clarify the speakers)
New York (Frankfurt: HX6.F - news) , June 17 (Reuters) - Charles Schwab Corp. is once again baring its teeth at large rivals, particularlyfull-service firms such as Bank of America (TLO: BAC.TI - news) 's MerrillLynch, Morgan Stanley (Berlin: DWD.BE - news) , Wells Fargo (Berlin: NWT.BE - news) & Co's WellsFargo Advisors and UBS AG (Xetra: UB0BL6 - news) 's UBS Wealth ManagementAmericas.
The San Francisco-based pioneer of low-commission brokeragehas been on a campaign in recent years to offer advice andfee-based accounts to clients with more than $250,000, similarto the strategy increasingly used by the four big firms, knownas wirehouses.
"The wirehouse model continues to lose favor," Schwabexecutive vice president John Clendening said at the ReutersGlobal Wealth Management Summit on Tuesday. About $750 billionmoved out of full-commission firms to independent advisers,discount brokers and other firms last year, because clients want"a straight answer" about what they're investing in and whatthey are paying advisers.
In 2002, Schwab raised the enmity of its Wall Street rivalswith a television ad showing a brokerage firm executive tellingsalesmen, "Let's put some lipstick on this pig." It coincidedwith then-New York Attorney General Eliot Spitzer's accusationthat brokers at Merrill and other firms were recommending stocksthat their analysts were privately calling "dogs."
Clendening, an executive vice president who coheads Schwab'sretail brokerage business, said assets moving to the firm from wirehouses have grown in the "upper-single digit" percentagerange in the last few years. About 17 percent of its assets arein fee-based accounts, but should rise to 30 percent within 10 years. Morgan Stanley Wealth Management President GregoryFleming said at the Wealth Summit on Monday that he expectsfee-based accounts to rise to more than 40 percent from 37percent at the end of the first quarter.
Clendening also said there is booming demand from Schwabclients for financial plans to help them meet goals. Schwabcreated 30,000 such plans in the first quarter, up 30 percentfrom a year earlier. He contrasted the plain-English plans tothe thick binders prepared by wirehouses that often "end up on ashelf, completely useless to most investors."
Schwab advisers create some complex plans, too, for a fee,but the vast majority of clients get free plans, he said.
He also said that when wealthy prospects come to discuss thepossibility of moving assets, Schwab advisers encourage them toask their current firm for explanations of charges. "The moststunning indictment of our industry is ... folks coming to mewho say I thought bond purchases were free," Clendening said.
The wirehouses, to be sure, say they are embracing moresimplicity and clarity in plans and financial statements, and onwhether clients are on track in meeting their goals. "Theindustry has not done a reliable job of telling people whattheir funding status is," Merrill Lynch Global Wealth Managementhead John Thiel said at the Reuters Summit on Tuesday. "Thebiggest issue with trust, our clients tell us, is transparency."
However, he and other executives said Schwab is exaggeratingits success in accumulating assets from wealthy clients tobecome what Clendening termed "truly the growth story in theindustry."
From 2010 through the end of 2013 total client assets in allparts of Schwab grew by $827 billion, equal to the combinedgrowth at Merrill Lynch, Morgan Stanley, TD Ameritrade Holdings and E*Trade Financial Corp, he said.
A spokesman at Morgan Stanley said the comparison wasinappropriate since Schwab included low-margin assets that itholds for independent investment advisers. A TD Ameritradespokesman said its double-digit growth in net new client assetsover the past five years "outpaces that of our competition."
Merrill's Thiel response? "I would just say it's a challengeto do that math, based on how people report," he said. (Reporting by Jed Horowitz)
- Morgan Stanley
- Charles Schwab
- Merrill Lynch