Referral network makes Schwab smile

Robert S. Klapper has a full beard and angular frame, but it is his constant smile that stands out.

Charles Schwab & Co.’s new referral czar is on cloud nine because Schwab’s Advisor Network is starting to work like a well-oiled machine.

The referral program has grown from $11.6 billion in assets at the end of August 2001 to $14 billion at the end of last month. New assets, which included the new program, between January and August totaled $4.2 billion, a 14% improvement over the year-earlier period.

But Mr. Klapper says those figures only begin to tell the tale. Those amounts primarily reflect San Francisco-based Schwab’s efforts under AdvisorSource, the program that preceded Advisor Network.

That is because the sales cycle for bringing a new client on board frequently lasts six months or more. Advisor Network-generated checks are just beginning to clear at adviser offices nationally.

“More investors are hiring an adviser, and more assets are coming in,” Mr. Klapper says. “We’re slightly ahead of plan – 8% to 10%.”

Big numbers

The good news is that $1 billion was generated between April and August under the new program alone. The size of the average referral jumped this year to more than $700,000 from about $600,000 last year.

Several advisers say that the difference between the old program and the new one is like night and day. They say the hype about Mr. Klapper, a Schwab retail veteran who was brought from Schwab’s retail side to the institutional side to bridge differences, hasn’t been overstated.

“I’ve seen fantastic improvement,” says Richard D. Steinberg, president of Steinberg Global Asset Management, a Boca Raton, Fla., firm with $230 million in assets under management. “The branches are getting it. They view it as a partnership, whereas before they viewed us as vendors.”

One tangible aspect of that partnership, Mr. Steinberg adds, is that he is kept informed at an executive level about the number of referrals and closings, as well as other pertinent data for his region.

“We never would have seen that before,” he says.

Kenneth Gutwillig, chief investment officer for Financial Decisions Inc. of New York, isn’t part of the referral program but says that he has noticed a sea change anyway.

“They used to consider our clients their clients,” says Mr. Gutwillig, whose firm has $130 million under management. “But now they consider us their clients. That’s the biggest difference.”

Focus on branches

Gregory N. Thomas, president of Shorey-Huntington Corp. in Concord, Mass., says he is a believer.

“Now virtually all its branch reps are engaged in the process,” he says. “That was not the case last fall. Schwab has clearly put a lot more focus on it in the offices.”

Mr. Thomas adds that his company has doubled its assets through the referral program in the past year, to $100 million.

The numbers back up the anecdotal view. Closing rates are soaring, and the numbers of advisers joining the program are inching up.

When Mr. Klapper started in the spring, the closing rate stood at about 25%. It is now at 35% and edging closer to 40%. The number of advisers in the program has crept up to 335 from 320 since the spring.

Mr. Klapper predicts the close ratio will top 50% by early next year, and he expects to add 65 advisers to the referral program by mid-2003.

David S. Waddell, senior investment strategist with Memphis, Tenn.-based Waddell & Associates Inc., which has $300 million in assets, says he is mostly pleased with the branch improvement.

“They’re doing a great job in Nashville – not so great in Memphis,” he says.

But Mr. Waddell says he is thrilled about another new aspect of Advisor Network introduced by Mr. Klapper: co-branding. Mr. Waddell has added the Schwab brand to his business cards, flyers and direct-mail pieces.

“We’ve got a marketing budget, but it doesn’t rival Schwab’s,” he says. “I don’t mind leveraging Schwab’s marketing budget at all.”

Mr. Waddell says he sees little downside in hitching his wagon to Schwab’s.

“They’ve had some strategic gaffes, but it’s never been something that’s hurt clients,” he says. “And I can always fire them if they screw up. That’s the beauty of the system.”

Mr. Klapper says that co-branding is in its infancy.

About 10% of advisers in his referral program have signed on for co-branding rights. Another 10% have said “no way.” The other 80% are waiting and watching, he adds.

“Do we hope it will be 30% to 40%? Yes,” Mr. Klapper says.

He says he hopes that advisers realize Schwab isn’t offering the brand lightly. “There is no more powerful testament to Schwab’s commitment to its Advisor Network,” he says. “Not only do we spend hundreds of millions on advertising, but there’s a man’s name behind it.”

So will Schwab, and its retail-bred chieftains continue to throw this kind of support behind people who can sign on with Fidelity Investments or TD Waterhouse Group Inc. tomorrow if they choose?

Mr. Steinberg thinks that Schwab will because it has executives straddling retail and institutional far beyond Mr. Klapper. It stretches to the president of the Schwab retail group, John Philip Coghlan.

“With John Coghlan, it’s only going to get better,” he says “All the fiefdoms disappear.”