Discount brokerages Charles Schwab and TD Ameritrade have been enjoying a boon this year as the stock market climbs and they add record numbers of customers. But the two leading online brokerages don't have day traders to thank for their surge. Instead, it's their base of independent financial advisers, otherwise known as RIAs, who are to thank. These independent financial advisors trade for their clients, many of which are wealthy, with money held at the likes of The Charles Schwab Corporation (SCHW) and TD Ameritrade Holding Corporation (AMTD).
According to the Wall Street Journal, Charles Schwab and TD Ameritrade have brought in around $200 billion in combined net new assets so far in 2017. The surge on the part of the RIAs even prompted E*TRADE to acquire Trust Company of America (TCA) earlier this year for $275 million to enter that business. TCA has more than 180 active registered independent advisers and $17 billion in institutional assets under custody.
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While the discount brokerages have long served the RIA market, they have seen a pickup in business more recently thanks to a wave of brokers jumping ship from the likes of Merrill Lynch and Morgan Stanley, aiming to keep more of the fees that come from clients and to have more control over their businesses. The fiduciary rule being extended to retirement savings has also prompted a rise of RIA business, reported the Wall Street Journal. Citing Cerulli Associates, the paper noted that RIAs could control more assets than the major brokerages combined by 2020.
In October, both Charles Schwab and TD Ameritrade reported big jumps in the number of advisers they have. Schwab reported an increase of 35% in the amount of adviser clients, while TD Ameritrade said new client asset from its adviser base beat last year's result by more than 50%. This week, Schwab announced that total client assets jumped 21% year over year in November 2017, hitting a record $3.32 trillion.
With the bull run in the stock market in its ninth year, there are some concerns that stocks won't enjoy similar gains in the new year, but no such slowdown is expected from the discount brokerages. According to the Wall Street Journal, expectations are high that the discount brokers will continue grow next year and beyond, driven by further awareness about low-cost investing and a preference to work with financial advisors, who have long been held to the fiduciary standard that requires them to put the interest of the client first.