Looking to save cash, Schwab Advisor Services is changing the way it compensates recruiters who bring RIAs into its fold.
The new system requires recruiters to negotiate directly with target RIAs for a cut of the “soft dollar” benefits Schwab pays when an advisor joins its custodial platform, according to RIABiz, dumping Schwab’s long-held practice of paying a basis point fee.
The shift threatens to disrupt a decades-old system in which independent recruiters pursue the most valuable advisors, often investing enormous time and effort to land key people.
Schwab has said the changes are aimed at bringing transparency to a process that is cloaked in personal relationships and opaque practices.
Schwab is also motivated by a desire to create a single, unified system for recruiting as the merger with TD Ameritrade progresses.
Peter Nesvold, a lawyer and banker who works with RIAs, has some advice for companies looking to improve their recruiting and retention efforts. Writing in Barron’s, Nesvold laid out three themes tied to measurement and culture to replace the emphasis on cash.
“The fact is, if you can only entice a high performer to your organization with a big paycheck, it is only a matter of time before that person is lured away with a larger contract,” he said.
News of Schwab’s fee change was first reported by Citywire in late February.
