For Some RIAs, $0 Trades May Bring More Pain Than Gain

A little over a month ago, Charles Schwab announced it would drop commissions for equity and ETF trades. Framed as a boon for the end-investor, how the decision impacts the more than 7,500 independent financial advisors that custody assets at Schwab is not as clear-cut. 

While Schwab Corp. founder Charles Schwab may famously hate commission, they were part of the business, and therefore part of the businesses—like independent advisory firms—that operated downstream from the discount broker. Now that they’re gone, new doors could be opening for innovations in portfolio management and direct indexing, according to Schwab leadership, while compliance consultants and lawyers warn advisors that they simply can’t pocket the fees that they save—at least not without telling their clients. Meanwhile, some advisors are scratching their heads, wondering if they should refile regulatory paperwork. Others are wondering how the fees they charge clients, or the services they offer, might be affected.

For advisors with a wrap fee, moves like Schwab’s will have a significant impact.

Read more at WealthManagement.com.