Charles Schwab announced the addition of more than 60 exchange-traded funds (ETFs) to the Schwab ETF OneSource platform, bringing the total to about 180 ETFs.
The new funds are offered by seven firms joining the
original roster of six ETF providers on OneSource, Schwab says. Investors can trade
ETFs covering 65 Morningstar Categories, all with zero online trade commissions
at Schwab. There are also no early redemption fees or enrollment requirements,
according to the firm.
The new ETF providers joining Schwab’s ETF OneSource are ALPS,
Direxion Investments, Global X Funds, IndexIQ, PIMCO, ProShares and WisdomTree.
They join founding providers ETF Securities, Guggenheim Investments, PowerShares,
State Street SPDR ETFs, United States Commodity Funds and Charles Schwab Investment
Management.
Heather Fischer, vice president of ETF platform management at
Charles Schwab, says it’s important for investors to consider how trading commissions
“can really add up, so they are crucial when evaluating the total cost of an ETF.”
As of August 31, 2014, Schwab says the ETF OneSource
platform has $31 billion in assets under management, and year-to-date flows into
ETFs in the program are $5.9 billion, representing about 45% of the total ETF flows
at Schwab.
In total,
65 ETFs have been added to the program, with 28 coming from new participants and
37 coming from existing providers. A complete list of Schwab ETF OneSource ETFs
is available here.
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It’s
an important question for advisory firm owners to ask, says Independent
Financial Partners CEO William Hamm, Jr.: What happens to my clients if I have
to quit working unexpectedly?
Hamm says he hears the question often from advisory firms
looking to join the Independent Financial Partners (IFP) network, which is
supported by broker/dealer LPL Financial. Hamm says IFP currently serves about
500 advisers across the U.S. through nearly 40 support staff members. The
network includes some 180 retirement specialists who oversee a majority of the
network’s assets under advisement. As Hamm explains, firms joining the IFP
network maintain independent ownership and operations while gaining access to a
variety of support staff and new compliance and service delivery tools that can
improve practice efficiency.
“The succession issue is absolutely on our radar as an
advisory network,” Hamm tells PLANADVISER. “In fact it’s one of our top
business priorities for this year—developing succession plans for all of our
advisers.We have quite a few that
have their own arrangements with their service providers, but we
believe it’s important for every adviser to have an actionable plan in place.”
This is likely to be a challenge, Hamm admits. Recent
research from CLS Investments suggests a scant 28.7% of advisory firm
owners have defined a formal succession plan for the case of an unexpected
death or disability.
Hamm says the budding interest in succession planning is in
large part derived from the aging nature of the financial advisory industry—he
cites the average age of financial advisers as about 56, a figure just
a few years higher than that established by recent industry-wide research. For
example, a Cerulli
Associates report published earlier this year pinned the average age of
financial advisers at about 51. The report shows some 43% of percent of advisers
are over age 55, however, with nearly one-third between 55 and 64.
Advisers
also appear to be more aware of the potential fiduciary and litigation risk
associated with operating an advisory practice without an actionable succession
plan in place, Hamm adds. Besides the compliance and risk management
aspects, having an intelligent succession plan in place can help an adviser maximize
the value of their practice and reduce uncertainty during an unexpected
ownership transition.
“Another reason I know that this is the better approach is
because I’ve done it the other way,” Hamm adds. “We had an adviser who came
over a few years ago that serves as a particularly good example. Right after
the transition he was diagnosed with brain cancer and three weeks later he was
gone. So we didn’t have a contract in place for such an unexpected transition.”
Hamm says that IFP had to make a decision to pay the late
adviser’s estate for the business, and then the network hired his long-time
assistant to support the transition process. Hamm says that IFP’s staff was
able to successfully transition about 95% of the affected clients' assets without a significant disruption of service, but the
effort wasn’t easy.
“It was a big challenge, but we were able to get as close to
a win-win as we could have in that situation,” Hamm says. “For the clients, the
estate and us, it was a good outcome. What we’re trying to do now is replicate
that and get a formal process in place for the rest of our advisers who may not
have an arrangement.”
Hamm says the succession question shines a favorable light
on the type of advisory network arrangement underlying IFP, in which firm
owners maintain independence rather than transition their books of business
entirely to the network.
“For the individual that wants to transition fully out of
their business, and who wants to sell, we’ve got about 150 advisers at a given
time looking for practices to buy,” Hamm explains. “We even have quite a few
younger advisers that are looking to buy more mature practices, so we are providing
that ready-made market.”
Hamm
says that, when buyer and seller are operating on the same advisory network,
this can actually provide a premium to the seller. “You’re on the same
platform, so the transition can be made very easily,” he explains. “So that’s another
ancillary benefit of being with a group like ours, we can arrange the transfers easily.”
Hamm says the IFP network, and others like it, also can
provide a sort of built-in disability insurance for advisory firm owners. The next
iteration of IFP’s adviser agreement—which Hamm says is due out in another
month or two—includes language establishing a predefined process that will be
enacted if the adviser becomes disabled.
“In the case of a disability, we will step in and take over
supporting your clients until you’re ready to come back,” Hamm says. “If you’re
not ready, or if it’s clear you won’t be returning to work, then we can work
out a buyout provision in that event as well.”
Hamm says that IFP’s buyout provisions, which he hopes to establish
with all advisers on the network, will help advisers put a realistic valuation
on their business long before the decision is made to sell. The same research from
CLS Investments shows that advisers are prone to significantly overestimate
the value of their practices, so being forced to think about firm valuations
earlier will force more realistic expectations among advisory firm owners.
This will be a key for advisers’ own retirement, Hamm notes,
as many depend significantly on practice equity to fund their own senior years.
“Most
advisers think their practice is worth much more than what it really is—but I
think once you get to the numbers and go through the cash flows and the nature
of the business, it’s a pretty easy discussion to have to bring that more
accurate picture in there,” Hamm notes. “But you do have to manage
expectations early if you want the adviser to have a successful retirement.”