Quick Thoughts on Recent Communication from Charles Schwab

Recently, we’ve received several questions about a mailer entitled, "Summary Notice of Proposed Class Action Settlement" involving Charles Schwab. Anytime you get a letter featuring words like “injunction” and “Class Action,” you probably get a little uneasy. Hopefully these brief thoughts de-clutter your mind as it relates to this mandatory mailing.

Charles Schwab, the largest custodian of assets in the Registered Investment Advisor industry (firms like Narwhal), acquired TD Ameritrade (another large player in the RIA and retail brokerage space) in October of 2020.

As one might expect, some individuals and organizations objected to this massive merger on grounds of a lack of competition. Others, particularly individuals and organizations associated with TD Ameritrade, objected due to inconvenience and forced change. Others objected because they didn’t love the idea of two big firms become one bigger firm. Still others objected because objecting is what some are best at. Some of the aggrieved parties filed a class action lawsuit against Charles Schwab & Co.

Schwab is now working towards a settlement with aggrieved parties. If you receive a letter from Schwab and do not respond, you will – by default – be lumped into any settlement that ultimately comes. You only need to take action if you wish to opt out and pursue an alternative settlement.

From my perspective, both as the President of Narwhal and as an individual Schwab client, I would not encourage our clients to take action. Just let it play out and forget about it. Ultimately, I struggle to come up with any quantifiable damage suffered by our firm or our clients as a result of Schwab’s acquisition of TD Ameritrade.

• Thematically, pricing has not evolved to any material extent (there still aren’t account fees, most trades are still free, etc.) at least as it relates to our portfolio management style.
• Access to market liquidity has not been reduced.
• Service from the Schwab team and platform has generally improved (though it was improving prior to this deal).
• The technology stack – both client-facing (you) and institutional-facing (our firm) – has improved with many of those improvements being directly attributable to applications previously owned by TD Ameritrade.

To be sure, Charles Schwab’s platform is not perfect. Having recently spent time with the company’s CEO (Rick Wurster) and the head of Schwab Advisor Services (Jon Beatty), they would be the first to admit as much. But I’m encouraged by the trajectory of improvements being made.

I’m sure if our firm had previously custodied with TD Ameritrade we would have a litany of gripes about the transition to Schwab, because transitions stink. Alas, we were not impacted by that process. Similarly, if we worked for a competing brokerage, we might not like seeing two larger players team up. However, we don’t work for a brokerage firm.

We continually review our custodial partnerships to ensure client accounts are held by the most appropriate firm. With very limited exceptions, Schwab remains our top preference.

Given all the sentiments expressed above, we will not (as a firm) and I will not (as an individual investor) be taking any action as it relates to the class action lawsuit. Lest I get in trouble with my friends at the Cobb County Bar Association, this should not be considered legal advice. But perhaps this context will help you understand our thoughts on the matter.

As always, we are here if you have any questions.