Four RIA strategies after Schwab raises referral minimum

Charles Schwab will require clients to have at least $5 million in investable assets to be referred to independent RIAs through its Schwab Advisor Network starting Jan. 5. The new $5 million floor more than doubles the $2 million threshold set earlier this year and follows an increase from $500,000 at the start of the year. About 150 independent RIAs currently participate in the network. Schwab noted that more than half of referrals now involve clients with $10 million or more in assets and said the change aligns the program with where it sees the strongest growth.

Industry consultants warned that the higher referral floor could reduce Schwab-originated prospects for mid-sized RIAs and recommended steps firms can take to protect new-business pipelines. One recommendation is to reassess how closely a firm’s brand is associated with Schwab. Advisors whose clients view Schwab as the primary relationship manager should make clearer that the advisory firm, not the custodian, is the lead provider of planning and service during onboarding, client communications and marketing.

Consultants also advised RIAs to accelerate direct client development by building referral relationships with accountants, estate attorneys, insurance professionals and other centers of influence that regularly introduce high-net-worth clients. Developing those direct channels can provide sources of new assets that do not depend on a custodian’s referral criteria.

Another option is forming partnerships with other firms or shifting custodial arrangements. Some RIAs may consider alliances with broker-dealers, family-office platforms or alternative custodians that offer competitive technology and service features. Consultants recommend reviewing custody terms, fee schedules and service-level agreements before changing custody or referral arrangements.

A fourth approach is expanding services that in-house custodian advisors are less likely to provide. Examples include advanced tax planning, access to private and alternative investments, and multi-generational wealth-transfer strategies. Consultants say those services tend to be relationship-driven and can differentiate independent firms.

Schwab has also adjusted fees for advisor members of the network and announced use of artificial intelligence to let its internal advisors work with more clients who have less than $1 million in assets. Tim Welsh, founder of Nexus Strategies and a former Schwab employee, described the firm as focused on retaining more mid-tier assets in-house to preserve fee and deposit revenue and summed up the priority as a need for “investment management revenues, basis points.” William Trout of Datos Insights said the prior $2 million threshold allowed referrals Schwab could have serviced itself and that a $5 million floor narrows referrals to clients better suited for larger independent firms.

Schwab defended the change, stating it remains committed to the independent advisor community and will continue investing in the Schwab Advisor Network. Chief Executive Rick Wurster has highlighted that assets managed by the firm’s financial consultants generate multiple times the revenue of retail-held assets and has pointed to demand among clients for paid advice.

The Schwab Advisor Network was established to connect retail clients needing advanced planning with independent advisors while bringing custodial assets to Schwab. Consultants and industry analysts have noted that technological advances, including AI, could change how custodians earn revenue from client cash and other balances. One consultant predicted the referral program could become more restrictive if the firm continues raising referral standards over the next two to three years.