Getting Ready for Schwab

In 1975, the Securities and Exchange Commission mandated that brokerage companies deregulate commissions on buying and selling securities.  For the first time in 180 years, trading fees were set by market competition.  This deregulation paved the way for an entirely new industry called discount brokers.  Instead of full-service brokers that provided investment advice, these discount brokers allowed do-it-yourself investors to transact market trades at a fraction of the price.

Although the first big discount broker was Charles Schwab, many other competitors came along.  The internet and cheaper computing costs changed their business as investors could access market information and place trades online rather than by phone.  As the years rolled by, investors saw lower trading costs fueled by competition and the ability of these firms to operate at large scales cheaply.  Eventually, in 2019, the largest discount brokerages reduced their trading costs of equities to zero.  Initially, this was done in response to competition and to keep their offering competitive.  But eventually, they would need to scale up to afford to give up one of their revenue streams.  This scaling up came in the form of mergers, with the most notable being two of the largest custodians, Schwab and TD Ameritrade, joining forces.

The acquisition of TD Ameritrade by Schwab was completed in 2020.  Since then, they have been operating as two separate businesses until a full integration can be completed.  The conversion of your TD Ameritrade accounts is scheduled to occur over the Labor Day weekend, 2023.  The best news about this conversion is that you will not be required to sign new paperwork with Schwab to open new accounts and transfer the assets from TD Ameritrade.  This will all be done automatically.  Schwab has assured us that the account features set up on your TD Ameritrade accounts will also transfer to the new accounts.  This includes any monthly or quarterly withdrawals to your bank, authorizations to transfer funds on demand to your bank without a signature, cost basis information, and beneficiary designations for your retirement accounts.

Some adjustments will need to be made for the change.  For example, you will not be able to access account information at advisorclient.com, which is TD Ameritrade’s website.  Instead, you will need to set up login credentials to Schwab Alliance.  This can be done either before or after the conversion.  You will also receive two 1099 forms for each account with taxable events for the 2023 tax year.

TD Ameritrade and Schwab have each developed competitive offerings as they have competed with each other over the years.  In some ways, these offerings are similar, and in other ways, they have clear advantages.  The combined company is planning on utilizing the best of each platform to create a great service at a very competitive price to our clients.  Spinnaker Financial Advisors is an independent company that can choose to work with any custodian we wish.  We expect the new company will meet all of our needs, but we retain the ability to move if it is in the best interest of our clients.   As always, we will be here to help our clients with the transition as questions arise.