Schwab will require at least $5 million in assets for client referrals to its Advisor Network, more than doubling the current minimum. Consultants say RIAs should consider alternative custodians.
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Charles Schwab is raising the asset threshold for client referrals to its Advisor Network to $5 million, more than double the current $2 million floor. The change takes effect Jan. 5, the firm told advisers this week.
Schwab said in a statement that more than half of the clients already referred through the network have $10 million or more. “Increasing the referral minimum to $5 million aligns the program with where it is seeing the strongest growth,” the firm said. Schwab added that it remains committed to the independent adviser community.
The move follows a previous hike from $500,000 to $2 million at the start of the year. The rapid escalation has some registered investment advisers questioning Schwab’s intentions. The network includes nearly 150 RIAs that receive referrals in exchange for custody fees and a cut of assets under management.
Consultants say RIAs worried about losing access to clients should consider diversifying their custodian relationships. Tim Welsh, founder of Nexus Strategies, said Schwab is clearly trying to keep more assets in-house. “They’re saying: We need investment management revenues, basis points,” he said. “So the first order of business is: Stop giving it to advisors.”
William Trout, director of securities and investments at Datos Insights, said the old $2 million threshold was “too porous.” It allowed clients Schwab could have serviced internally to leak to outside firms. At $5 million, only the largest RIAs are likely to receive referrals. “Schwab gains two things,” Trout said. “More $2 million to $5 million assets staying in-house where Schwab controls margin, deposits, and ancillary revenue. And reduced brand visibility of RIAs in the sweet spot where independent advice is most threatening.”
Schwab has also raised fees it charges network members and is using AI to let its internal advisers handle more clients with less than $1 million. The technology threat extends to cash-sweep revenue. Analysts have questioned whether AI-powered cash management could erode the billions Schwab earns from sweeping uninvested client cash into its bank.
CEO Rick Wurster told analysts in July that assets managed by Schwab’s in-house wealth unit generate three times the revenue of retail assets. Only 5% of clients pay for advice, but nearly a third have indicated willingness, he said. “Our opportunity to close this gap is a win-win for clients and Schwab,” Wurster said.
Schwab executives have pointed to $37 trillion in household wealth as evidence there is enough business for everyone. Welsh, a former Schwab executive, sees a different trajectory. He noted the $2 million minimum had stood for more than two decades before the recent changes. “They’re going to eliminate the program in the next two to three years,” he said. “Why would you go from $2 million to $5 million so fast? You do that and then see what happens. Nobody left? Okay, cool. Now it’s $10 million.”
The new floor takes effect Jan. 5.
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