Charles Schwab Corp. to Purchase TD Ameritrade for $26 billion

Charles Schwab Corp. announced it has agreed to purchase TD Ameritrade Holding Corp. for $26 billion in an all-stock transaction, combining two of the largest custody service providers to independent financial advisers.

After the merger, the combined firm will have assets in excess of $5 trillion, with TD Ameritrade adding 12 million client accounts, $1.3 in assets, and nearly $5 billion in revenue to Schwab.



Impact on Smaller RIAs

Speculation has already begun on the impact on the 7,000 RIAs whose accounts are currently in custody at TD Ameritrade. Some smaller RIAs had initially expressed concerns about the level of service they will receive after the acquisition.

Schwab has hired TD Ameritrade executive Tom Bradley to oversee all RIAs with less than $100 million in assets. Bradley, who served at TD Ameritrade for decades before he left in 2017, is highly regarded and considered an advocate for smaller RIAs.

Additionally, Schwab has said it will expand its services for RIAs with less than $100 million in assets, including the addition of:

  • virtual business consulting
  • live-stream events
  • 50% reduction in pricing for electronically traded transaction-fee mutual funds
  • Portfolio Connect™ portfolio management system, free of charge for advisors who custody clients at Schwab.

Further questions remain about what the transition will look like operationally for advisers, including account paperwork, wires, and additional work that will need to be done to transition client accounts; however, at this stage, speculation is early as the sale itself will not be completed until the second half of 2020.

Potential Complications

The deal will face a stringent antitrust review and is expected to take regulators through the third quarter of 2020 to approve. Earlier this year, Schwab cut its commissions on transactions, and TD Ameritrade was the most affected by the move, which may draw scrutiny in addition to the size of the combined company.

Another potential complication for the deal is TD Bank’s ownership stake in Ameritrade. The bank currently owns 43% of the company and has a banking agreement in place through 2021. After the merger, it is expected that TD Bank will own 13% of the new business and have two seats on the board but the voting stake will be limited to 9.9%. 

Expected Transition Timeline

Schwab has indicated that the merger transition will be led by its COO Joe Martinello and a leadership team comprised of both Schwab and Ameritrade employees.  It is expected to last somewhere between 18 to 36 months. The transition team will capitalize on opportunities to reduce expenses and scale its services. It will additionally work to combine and improve client technology integration and innovation.

The combined firm headquarters is expected to move to Schwab’s new campus in Westlake, Texas with plans to continue its large operations hub in San Francisco as well.

If you or your firm has questions, please contact Core Compliance and Legal Services, Inc. to speak to one of our experts.

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