As Schwab plans to swallow TD Ameritrade, advisortech firms who are partnered with TD wonder if they'll get spit out.
What’s unclear is how they will be impacted by the disappearance of the custodian that differentiated itself by opening its platform most liberally to them, compared to Schwab and Fidelity.
“TD Ameritrade’s open Veo integration platform in many ways helped support the explosion of fintech innovation in this industry and in financial services in general,” says Simon Roy, CEO and president of Jemstep, a robo serving RIAs, broker-dealers, banks and insurers. “I would hope that Schwab would take a similarly enlightened approach.”
Nine years ago, TD Ameritrade introduced Veo Open Access, allowing a large number of small firms to integrate with it. Today the platform links to about 180 fintech firms through API integrations (which stands for “application program interface”), allowing them to securely access customer data for the tools and services they sell. That compares with slightly more than 80 at Schwab, according to a Schwab spokesman.
There’s no guarantee that sort of open architecture approach will continue after it is acquired by Schwab, many tech firms fear.
“It will be tough for fintech firms, absolutely,” says Scott Huff, an advisor and founder of Yourefolio, an estate planning tool.
Adam Holt, a planner and founder of Asset-Map, an asset visualization technology for advisors and clients, says “Schwab could get very specific about who the partners are that they want to play with.”
But even if that partnership channel narrows, fintech competitors will have time to adjust, says Brian Shenson, Schwab’s former vice president of Advisor Technology Solutions. “If there is a plan to truly sunset one of these platforms,” either Schwab’s or Veo, he says, “I can’t see that happening for one to two to four years.”
“I don’t perceive Schwab as un-open as the industry has made them,” adds Shenson, who left Schwab in 2017 and is now a co-founder of Springboard Advisory Group in San Francisco. “I think the storytelling around openness was more challenging for Schwab. I think TD, to their credit, took advantage of the optics around that.”
Either way, over time, as the newly combined firm optimizes its holdings, it will be forced to shutter one of the platforms, says industry consultant and former Schwab executive Tim Welsh, of Nexus Strategy. Welsh predicts Veo will go.
Schwab declined to respond to this speculation.
“Once the deal closes, as expected in the latter half of next year, integration efforts will begin, with a focus on enhancing the client experience by identifying the best capabilities from both firms,” a spokesman said via email. “For now, it’s business-as-usual, and we remain committed to providing independent RIAs with the standard of care they expect from us as their custodian.”
It makes strategic sense for Schwab to shutter Veo and to cut ties with small firms, Welsh says.
“It’s narrowing the scope of their risk profile,” Welsh says. “It’s so much work on the custodian side to validate all these small firms.” Their connection to Schwab poses a “risk of [data] breaches because a hacker could get in there. And that’s the risk that Schwab doesn’t want to take.”
Even if Schwab continues to allow firms access to its data, Yourefolio’s Huff says, it could find other ways to box out small firms like his.
“I think the biggest concern is, are they going to monetize the API integrations to us? Are they doing that to limit the number of firms?” Huff asks.
Although his firm already is integrated with both Schwab and TD, he’s concerned Schwab could start charging fees as high as $100,000 a year for its integration.
“They [Schwab] could throw the ballgame out,” Huff says.
While Shenson says he sees more resolve at Schwab to expand its openness to fintechs, he also thinks the custodian will become more “disciplined.” It doesn’t make sense to build deep and complicated integrations with firms that are too small, Shenson says.
If Schwab does choose to narrow the field, the industry will benefit, says Jason Wenk, founder of digital investment platform and custodian Altruist.
“Don’t think Schwab wants to partner with every random, poorly-funded, poorly-run fintech firm,” Wenk says. “You get a lot of really garbage vendors that are now able to plug into your tech ecosystem.”
Overall, Wenk says Schwab’s $26 billion purchase of TD will clean up the financial technology space via the kind of bundling and innovation that Amazon and Google have pioneered elsewhere.
“People may or may not like it, but the only way we get costs down and get efficiencies up is by buying this stuff up,” Wenk says.
Anyone who fails to see this, he says has “spent too much time in our industry and not enough time in the economy as a whole. Amazon is the king prime example of owning their entire infrastructure.”
He expects large acquirers like Schwab to follow suit.
Other fintech leaders, more sanguine, say they expect Schwab won’t contract its service to advisors but will expand them to include the full menu of tools to which TD already has granted them access.
“I understand the ultimate goal would be to consolidate” across TD and Schwab’s assets, says Edwin Choi, co-founder and CEO of Capitect, a performance reporting, rebalancing and billing tool for advisors. “There’s no reason to have two separate platforms that do the same thing. But, I can’t imagine they would sunset one without having a clear smooth transition plan for all of those [fintech] partners.”
But, one way or the other, the field will change, Wenk thinks, and not to everyone’s advantage.
“It’s going to get very, very competitive,” Wenk says. “There definitely will be people who don’t win in this.”
