Some Scottrade RIAs think the company's giant branch network is ripe for referrals

It would be a culture shift but Brian Davis leaves the door open

Monday 10.4.10 by Brooke Southall

Eric Parnell chose to custody the assets of his RIA at Scottrade Advisor Services for many of the same reasons other advisors cite: good service, low fees and a comfort level he achieved by first holding his personal assets there.

But a clinching factor for the founder of Gerring Wealth Management of West Chester, Pa., was a more basic one – Scottrade’s extensive branch network.

“There’s a Scottrade branch about a mile from my home; I can go in there and process paperwork,” he says.

A certain number of Scottrade’s advisors have always hoped that the relatively new custodian would make use of its extensive branch network by using it to funnel high-net-worth accounts to RIAs. A change in the management at the company – Brian Davis is taking the helm at the St. Louis, Mo.-based custodian’s advisor unit – has renewed those hopes.

See: Adding to the list of RIA custodians headed by execs with Schwab schooling, Scottrade promotes Brian Davis

Asset flow

Davis says that Scottrade has not ruled out the creation of a branch referral network but it depends on how much RIAs demand it.

“It’s always a possibility, but it’s not in our immediate plans. Input from our advisors is a top priority. Each year as part of our planning process, we survey our advisors in an effort to help us prioritize future initiatives. It will be interesting to see where a referral program ranks in our next survey.”

One Scottrade RIA who has had the opportunity to communicate with Davis over the years is optimistic — but understands the challenges, too.

“I think Brian is trying to make that happen, but apparently it’s pretty difficult because it’s getting into the advice business,” says John Burke, principal of Starboard Asset Management, which manages $50 million from Palm City, Fla.. “He might pull it off but he’s bucking a culture. If he does, they’d be much more successful.”

Bricks and mortar

The top three custodians – Charles Schwab & Co., which has 300 branches, TD Ameritrade, 100 branches, and Fidelity Investments, 125 branches – all have strong bricks-and-mortar retail presences.

Those custodians have deliberately leveraged those branches by creating systems for referring high net worth clients to RIAs. Those advisors in turn use the brokerage firm to custody those assets.

Yet none of those three has a branch network that extends to as many locations as Scottrade, with its more than 475 branches. Scottrade has differentiated itself by having among the lowest commissions in the industry and delivering a high level of service for the price. Its branches also tend to be smaller and are often located in secondary cities where rents are lower. The company has never wanted to make any impulsive business moves that could jeopardize its position as a low-cost high-quality provider of discount brokerage services.

Indeed — knowing their custodian’s strengths — not all RIAs using Scottrade are certain that they want the company to become a source of referrals.


“I like the straightforwardness factor of Scottrade,” says Derek Kennedy, principal of Kennedy Wealth Management LLC of Knoxville, Tenn. “I’m not necessarily against [receiving referrals from Scottrade], but I have Scottrade [as my firm’s custodian] for what it can do for my clients and not necessarily for what it can do for me. I don’t believe they need it to be successful. They keep getting better incrementally.”

Parnell is in the middle, too. “Those sorts of referrals would be really nice, but I’m looking [more] at the efficiency of trading and the customer service at Scottrade.”

The other custodians have programs that funnel referrals to select advisors.

Fidelity refers business to 120 advisors from its retail locations. See: Fidelity primes the referral pump for RIA clients

TD Ameritrade has more than 130 advisors that participate in its program and its been pushing to increase the yield of referrals from its 6 million retail accounts.

Conversion climb

From 2009-2010 referrals to RIAs are up 35% from TD Ameritrade branches, and assets converted by RIAs from those referrals are up 50% in 2010 from 2009, according to the company

Conversion rates [the percentage of referred clients who end up placing assets with RIAs] have been steady at near 45% over the last 18 months, a spokeswoman adds.

Schwab has a similar pipeline of referrals flowing from its branches to its RIAs that has an average 200 conversions per month and has accumulated $25 billion on behalf of these advisors.

Brian Davis