Advisers cashing in on Schwab program

Charles Schwab & Co. Inc. delivered billions in new assets to the 330 advisers in its referral program during the second quarter. And the cash infusion is changing the way these advisers view the San Francisco broker.

“I see real commitment in their eyes,” says Dennis Miller, president of Miller/Russell & Associates Inc. in Phoenix. “They’re not just putting their toes in the water.”

New-client referrals in Schwab’s Advisor Network climbed 30% from the amount the previous quarter, to 5,726. New clients garnered from referrals spiked to 2,177, an increase of 53%. Schwab has 372 branches.

Robert S. Klapper, senior vice president of the Advisor Network, attributes the improvement in part to a higher close rate. Since Schwab revamped the program last year, the close rate is up to 37%, from 27%.

The biggest change in the program’s approach was getting branch brokers more closely involved in the process.

But referral fever has also swept through TD Waterhouse Group Inc. The New York-based broker dished up 3,643 referrals through AdvisorDirect over the first six months of this year, up from 1,325 for the equivalent period a year earlier. Waterhouse has 160 branches in the United States.

And Boston-based Fidelity Investments, which has an 18-month-old referral program, has extended it to all but five of its 91 branches.

Schwab has given Mr. Miller’s company, which has $560 million under management, 50 referrals of $1 million or more in the past nine months, he says.

willingness to evolve

But what Mr. Miller and other advisers in the Advisor Network program find notable is how greatly Schwab has been able to evolve its business practices in such a short period of time.

Most impressive to Mr. Miller has been Schwab’s willingness to change the face of its human capital.

“Schwab’s attacking their personnel weaknesses,” he says. “We’re seeing new people arriving in their branches committed to the Advisor Network idea.”

Richard D. Steinberg, president of Steinberg Global Asset Management Ltd., says his company’s success with the referral program mirrors the national increases. The Boca Raton, Fla., company has $300 million under management.

“Our numbers are off the charts,” he says. “We are doing very large accounts that would normally go to other large wealth solutions at U.S. Trust or elsewhere.”

Mr. Miller agrees that more and more of the referrals are of the variety that draw blood on Wall Street.

“A lot of [referrals] aren’t Schwab customers for three or four years before they come here anymore,” he says. “I think their advertising is effective.”

“I think the public is catching up a little bit,” adds Mr. Klapper.

Schwab has spent millions of dollars in the past year advertising that it can handle the wealth management needs of individuals through its network of advisers.

Yet for all of Schwab’s external efforts, it may be some seemingly minor incentives put in place since the beginning of the year that have turned its branch brokers into asset referral machines.

Schwab has said all along that its branch brokers have had an equal incentive to steer assets to advisers and to itself.

This includes self-directed accounts, its New York-based U.S. Trust Corp. subsidiary and its own private-client offices.

incentive system

Branch brokers now are given credit toward their bonuses for existing assets that they move from the retail side of the business to financial advisers.

They also get credit for assets that come from the referred client after the account is transferred to the independent adviser, another key change that in effect gives them trailer fees. Schwab wouldn’t specify how long the brokers get credit for trailing assets.

Mr. Steinberg says that this rejiggering of the incentive system is a key indicator of Schwab’s hunger for change.

“We gave feedback to [Schwab] management, saying: `This is a flaw,”‘ he says. “This was a piece that was missing.”

The other big change has been an upsurge in aggregating client prospects into local group events. Schwab branches have helped organize as many as 750 such events this year.

But Mr. Klapper says that even these events have rapidly evolved. Initially, many of the events hosted as many as 150 people, but the numbers have come down consistently.

Mr. Steinberg says he keeps his events limited to seven guests.

The many ways that Schwab has changed its business practices and attitudes to make this happen are complex, but the final tally is straightforward.