Schwab poised to pass wirehouses in managed-accounts volume

Breakaway brokers boosting business; market share now at 8.3% and rising

The increasing number of wirehouse brokerage representatives going independent is cited as a leading force behind the explosive growth of The Charles Schwab Corp.’s separately-managed-accounts platform.

With $44 billion on its managed-account-solutions platform, following a 31% increase over the past year, Schwab has one of the fastest-growing platforms and is on the brink of surpassing one or more major wirehouse platforms within the next few months.

Already the fifth largest platform, Schwab is just behind UBS AG, which has $48 billion on its managed-account platform, and Wells Fargo & Co., which has $49 billion, according to Cerulli Associates Inc.

The managed-accounts space, traditionally a wirehouse vehicle, is still dominated by Merrill Lynch Bank of America with $136 billion and Morgan Stanley Smith Barney with $146 billion.

“The only reason we haven’t passed anyone yet is those firms keep merging,” joked David Lindenbaum, vice president for managed-account solutions at Schwab.

Third-quarter market-sizing data won’t be available from Cerulli for at least two weeks, but the trend is in place and he predicted that Schwab could advance at least to the fourth-place spot as soon as year-end or early next year.

Mr. Lindenbaum’s optimism, which he detailed at the Schwab Impact conference in Boston this week, is supported by a growth rate that has Schwab representing 52% of the $6 billion worth of total net inflows into managed accounts over the first six months of the year.

Launched in 1999, the Schwab platform’s total industry market share is at 8.3%, which is up from 2.7% in 2004, Mr. Lindenbaum said.

According to Cerulli, Schwab’s growth rate over the past year is higher than any of the other top 10 managed-account platforms.“We’ve seen them over the past year capture a lot of assets, and they’re creeping up there,” said Patrick Newcomb, a Cerulli analyst.

Mr. Lindenbaum called Schwab‘s growth “organic,” acknowledging the impact what he calls “advisers turning independent.”

But Mr. Newcomb recognizes Schwab‘s growth spurt as representative of a direct transition of business coming from the wirehouses.

“Wirehouse advisers are going independent and Schwab’s platform fits a niche,” he said. “You could easily guess that some of the asset outflows from the wirehouse platforms is going directly to Schwab.”

Schwab is catering to the newly independent wirehouse reps by giving them a variety of choices, which include access to 3,500 strategies from 1,100 different money managers.

Mr. Lindenbaum said the platform is growing by about 400 strategies per year, a pace that Mr. Newcomb called unprecedented.

“That is definitely a high number of new strategies and it goes along with the growth and the need to accommodate more advisers,” Mr. Newcomb said.

One of the fastest-growing strategies on the platform, according to Mr. Lindenbaum, is a municipal bond ladder strategy that has attracted $500 million since it was introduced by Pacific Investment Management Co. LLC six months ago.