Deals & People May 16, 2024

Charles Schwab Names New Advisory Services Head

Veteran Bernie Clark is moving into an advisory role as Jon Beatty is promoted to lead RIA custody services.

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Charles Schwab announced an executive reshuffle Thursday including a new head of advisor services.

Bernie Clark, the head of adviser services who has overseen major growth for the division, will be taking an advisory role after more than 13 years in the job effective June 28, Schwab announced. Meanwhile, the firm “expects to name” Jon Beatty, its chief operating officer of adviser services to the post, while also naming Tom Bradley, currently a managing director for adviser services, as chief client officer for the business, reporting to Beatty.

Clark is stepping aside after more than a decade of growth of the firm’s independent adviser network, which now includes those who remained from the acquisition of TD Ameritrade. RIA custody assets for the firm have grown from $600 billion in 2010, when Clark took over, to over $4.26 trillion as of April 30, according to the firm.

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Bernie Clark

The reshuffle comes after Schwab announced the completion of its 2020 acquisition of TD Ameritrade with the full transition of about 1.8 million client accounts to Schwab in what the firm calls the largest integration in its history. It also, however, comes after earnings have been hit in part by higher interest rates, causing Schwab bank customers to leave for higher interest earning options. That also contributed to the company laying off more than 2,000 employees in late 2023 and the leadership forecasting that 2024 would be a “transitional” year.

Timothy Welsh, president, CEO and founder of consulting firm Nexus Strategy LLC, notes that a change in leadership in the adviser services unit will naturally have some advisers concerned with changes in Schwab’s custodial services.

“It will definitely give independent advisers pause,” Welsh says. “Historically, the message from Schwab was ‘we are here to support you, the underdog,’ and now all that has changed.”

Walt Bettinger, co-chairman and chief executive officer of Schwab, said in a statement that Advisor Services head Clark had come to him suggesting the transition.

Jon Beatty

“Recently, Bernie Clark came to me and suggested that with the Ameritrade integration for advisers complete, and the exceptionally sound footing of the Advisor Services business at Schwab, it was time to make a transition in his duties at the firm,” Bettinger said. “His impact on the independent investment adviser industry is arguably unmatched, leading the industry from its infancy to become one of the fastest growing segments of the investment services world.”

He also noted his mentoring of Beatty and Bradley, and his continued role advising the division.

Beatty is being promoted after 20 years at Schwab during which he held various roles working with independent investment advisers. Bradley joined the firm after the acquisition of Ameritrade in early 2020, where he held independent adviser and retail leadership roles.

In addition to those moves, Schwab announced that CFO Peter Crawford would be stepping down after 22 years with the firm, to eventually be replaced by Mike Verdeschi, most recently treasurer of Citigroup, after a transition period. In addition, Joe Martinetto will move from his role as COO to executive chairperson of Schwab Banks—a position he takes after completing the integration of Ameritrade clients to Schwab. His current duties will be “assumed by other leaders,” Schwab wrote.

Nexus’ Welsh says that the Ameritrade deal added to an “oligopolistic situation” for RIA custodial services. Though Schwab’s leadership shift may now give other players such as Apex Fintech Solutions, Axos Advisor Services and Goldman Sachs’ recent push into RIA services a moment of opportunity. An adviser “might not move altogether, but you might entertain other options, and maybe move your next four or five clients to another custodian,” says Welsh, who worked for Schwab in business consulting services more than 18 years ago.

Welsh noted that, under Clark’s leadership, the firm made a pledge not to raise fees on independent advisers—something the industry will likely be watching to see if it remains.

Client Service May 16, 2024

NQDC Complications and Best Practices

Experts point out common points of confusion plan administrators and participants should watch out for in nonqualified deferred compensation plans.

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While nonqualified deferred compensation plans are a valuable benefit program, they can also pose unexpected complications for plan administrators and executives, according to commentary made during a webinar Tuesday held by law firm McDermott Will & Emery.

NQDC use has been on the rise in recent years as plan sponsors look for ways to both draw and retain top talent. NQDCs can be offered as an add-on to a 401(k) savings program and, as they are not subject to discrimination testing under the Employee Retirement Security Act, can be offered to select groups of employees.

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But just because NQDCs are not under ERISA does not mean they don’t have complications for advisers and sponsors that can, at times, even hinder use, according to Mark Maizel, executive director of nonqualified plans at Graystone Consulting, Morgan Stanley.

Asset Management

One area of concern can be asset liability management of the plans to ensure that participants have access to the funds when they want them.

“I think on the asset liability side it’s just foresight,” he said. It’s important to work with “a consultant that can help you not only on the back stuff, but with all the same due diligence and rigor that you do on the investment side with 401(k) in terms of monitoring expense ratios, looking at performance, looking at the best-in-class funds you may have in there.”

If assets will be set aside, it’s important that asset liabilities are in a tight range, according to Maizel. He said he ensures those parameters are set up front with all his clients to avoid any panicked calls from a CFO or treasurer about rebalancing.

“We know what the terms are, and then we constantly monitor that, so that the system is rebalancing daily participant money,” he said. “The corporations can move money as they set aside money in a rabbi trust. Coordination and integration of that is evaluated by the administrator obviously daily, and then we look at it monthly and quarterly from an investment standpoint and from an asset liability standpoint.”

Participant Needs

Brian J. Tiemann, partner, Chicago at McDermott Will & Emery, said a common “panic call” he receives is when a participant’s circumstances have shifted. They may have made an election at a certain point, but then their situation may have changed. Sooner or later, that participant may want to take advantage of a different choice for the investment’s use than originally planned.

“It certainly can be frustrating for them and disappointing to know that there is a certain amount of inflexibility when we get to that point,” he said. “Communication is such an important piece, especially repeated communication for those that are in the plan over multiple years.”

Tiemann said consistent communication is important so that participants don’t end up in a surprise situation where they have fewer options to change things or be surprised by the tax treatment of the distributions.

Lisa Loesel, partner, Chicago at McDermott Will & Emery, stressed the importance of having people understand the flexibility issue of NQDC plans.

“When rolling out of a plan you have a lot of flexibility, and you can give folks a lot of options,” she said. “When you have a plan that has a lot of these bells and whistles and participants do enrollments for a couple years, they start to think of those options as being something that will always be available to them.”

That’s where a 409A comes into play, Loesel said, referring to a section of the Internal Revenue Code that governs NQDC plans. That rule can make things “really, really stickybecause participants are often locked into their choices. Even though a 409A gives them the option to potentially change some of those decisions, the rules are so complicated that a lot of plan sponsors don’t offer these adjustments.  

“We’ve seen some bounce back to a more simple design just because I think the additional complexity sometimes harms people more than it helps them,” said Loesel.

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