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Industry leaders puzzled by RIAs' being paid by Schwab and Fidelity for investing in funds

Some RIAs see it as an unacceptable conflict, but the custodians are unabashed about the arrangements

Author Lisa Shidler April 19, 2013 at 5:11 AM
3 Comments
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Roger Hewins: What the heck are they doing for clients to earn this?

RIA Custodians


Jim McGuire

Jim McGuire

April 20, 2013 — 12:36 AM

Thank you Schwab and Fidelity for further confusing the consumer. Brokers ordinarily receive such payments while RIAs who sit on the same side of the table get paid by our clients’ directly. If these back-door, “mystery deals” permeate to consumer circles, we’ll be no better off than the brokers who collect such renumeration.

On Schwab’s website, http://www.riastandsforyou.com/benefits-of-an-ria.html on point #2 “You know what you’re paying for. I love reading the fact their explanation “this fee structure is simple, transparent, and easy to understand, and it gives your advisor an incentive to grow your assets.”

Schwab, perhaps you can be transparent and explain the particulars of these payments in a simple, transparent, and easy to understand fashion and also further explain, why some RIAs receive these incentive dollars and not others. Surely you have a policy manual waiting to enlighten us?

Rob Isbitts

Rob Isbitts

April 23, 2013 — 1:50 AM

Good call, Jim. This is yet another reason why advisors should be looking toward individual equities and away from mutual funds as the core of their portfolio. Mutual fund-advisor relationships are becoming more poisonous by the day. All the while, the client simply wants to know that they are investing in something that makes sense. Individual stocks, carefully chosen and with client-specific volatility tolerance in mind, are far less confusing than what funds have become. And with the new ETF OneSource lists, the virus may spread there.

Ben Stein

Ben Stein

June 21, 2013 — 7:02 PM

No more confusing or befuddling than how Schwab, TD, Fidelity and others “monetize” RIA order flow by selling those orders to select “preferred market-makers” who trade against those customer orders by peeling off pennies and even nickels and dimes courtesy of their ability to arbitrage between the “screen-based markets” and the prices that are not displayed. The customers are purportedly getting 'best price execution’—but the industry has made it such that there is no real definition for best ex that customers can rely on. Yes, Schwab and TD will say : “but our customers get commission-free execution, so everybody wins!” Those folks should form a formal consortium and hire Sgt. Schultz to be their PR spokesperson.


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Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Nexus Strategy
Consulting Firm
Top Executive: Timothy D. Welsh

Pershing Advisor Solutions
Asset Custodian
Top Executive: Mark Tibergien

Private Advisor Group
Specialized Breakaway Service
Top Executive: Frank Smith, Chief Executive Officer

Team Hewins
RIA Seeking to Hire Advisors
Top Executive: Roger Hewins



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