With big assist from RIAs, Schwab is still a net new asset magnet
Wirehouses keep net flow numbers to themselves
5 min read- Schwab's net new assets reached $17.3 billion, though down from previous periods.
- RIAs contributed $7.7 billion to Schwab's net new assets, a 20% quarterly decrease.
- Wirehouses lag custodians in organic asset growth, relying on advisor acquisitions.
- Transparency distinguishes Schwab, as competitors limit net new asset reporting.
The Charles Schwab Corp. has one undeniable advantage with regard to net new assets: it reports them publicly every single quarter. This key indicator of the health of brokerage firms — and the financial advisors who funnel the assets to them — is less accessible at many of Schwab’s competitors.
The wirehouses – as far as RIABiz can discern — have stopped reporting net new assets quarterly and Fidelity Investments – which likely has substantial net new assets to flaunt — cites its prerogative as a private company to keep the numbers to itself. TD Ameritrade discloses total net new assets but it declines to break out net gains by its RIAs. Overall, TD brought in an impressive $6.9 billion of net new assets for the quarter ended June 30, up from $6.4 billion of net new assets in the quarter ended March 31.
With that information as preamble, Schwab continues to rake in net new assets, albeit at a rate that compares unfavorably to a shadow competitor — its year-ago and quarter-ago self. Schwab raked in $17.3 billion of net new assets for the three months ended June 30. This haul was off 33% from the previous year and it was 32% less than the $25.3 billion of net new assets it gathered in the first quarter ended March 30. Of the $17.3 billion this past quarter, RIAs accounted for $7.7 billion of the gains, a drop of 20% from the first quarter’s net new assets from RIAs of $9.6 billion.
The $25.3 billion for last quarter was up 16.6% from the $21.7 billion from the previous quarter ended Dec. 31 but down 39% from the $41.3 billion of net new assets it gained during the first quarter of 2008.
With a rebound in net flows from its biggest advisors, Schwab finishes 2010 with a flourish
But there’s an important observation to make about Schwab’s net new assets, says Sean Cunniff, research director for the Tower Group of Needham, Mass.
“It’s a big number,” he said. “In the current environment the fact that you’re bringing in net new assets is a huge positive.”
Net new assets draw the attention from analysts like Cunniff because they gauge a financial firm’s competitive position. They reflect asset inflows after subtracting outflows and these inflows tend to come at the expense of rivals.
Schwab rivals like Merrill Lynch, Morgan Stanley, Smith Barney and UBS do not disclose net new assets on their quarterly earnings statements. The financial advisors at these four firms combined to gather $6 billion of net new assets in 2008 compared with more than $100 billion for Schwab, Fidelity and TD Ameritrade combined, according to statistics quoted by Schwab during a recent webcast.
Story Timeline
This appears to be a continuation of a gathering trend. The RIAs who keep assets with Schwab, TD and Fidelity brought in $215 billion during the six quarters ended June 30, 2008, compared with $168 billion gathered by Smith Barney, Merrill Lynch, UBS and Morgan Stanley during the same period, according to Citi Investment Research.
Assets at wirehouses inflated by adviser acquisitions
Schwab Advisor Services is nearing $800 billion of RIA assets but analysts are split over whether it can continue to dominate
As bad as wirehouses are doing by these statistics, the asset-gathering gap between custodians and wirehouses is actually wider, according to Patrick Butler, a special projects consultant with Nexus Strategy LLC of Larkspur, Calif. Much of wirehouses’ net new assets during that period were acquired by paying signing bonuses to advisers from places like Goldman Sachs, US Trust and Alex. Brown, he said.
“I know [the bulk of net new assets] was acquired” by many wirehouses, he says. “One firm I know hired 500 $1-million producers.”
Though Schwab Institutional gained $9.6 billion of net new assets from RIAs, for the quarter ended March 31, it still represents a drop of 18% from the $11.7 billion gathered the previous quarter and a plunge of 52% from the first quarter’s net new assets of $19.9 billion in 2008.
These declines of net new assets by RIAs largely followed the downward trajectory of the markets. The S&P 500 started 2008 higher than 1400 and finished the year down 55% at 903. The index plummeted another 33% to 677 by March 9, and finished the quarter at 798, off 15.5% from where it began the year and off 65% from the 1322 where it stood on March 31, 2008. In other words RIAs weren’t necessarily winning fewer accounts, but rather the accounts they won had declined in asset value.
Neil Hokanson: Put rainmaking aside to
care for existing clients
The drop in RIA net new assets can also be explained by RIAs’ resetting their priorities during the market turmoil, according to Michael Cianfrocca, spokesman for Schwab. “Advisers were more focused on existing clients as opposed to winning new clients,” he said.
Neil Hokanson, president of Hokanson Associates, which manages $250 million from Solana Beach, Calif., was one adviser who shifted his behavior because of market conditions.
“I’m the chief rainmaker here and I spent a lot of my time [in recent months] hand-holding existing clients and scrutinizing portfolios,” he said. “Our new assets were not what they were a year ago.”
Note: This article isn’t complete until I hear from you. In particular, any information about net new assets at wirehouses would add considerable value. Please e-mail me your thoughts and criticisms and I’ll publish them or incorporate them into an article in the near future. Brooke@RIABiz.com
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